By Scott Sheldon  December 22, 2011 10:30 am

As you probably know, mortgage loan financing requires acceptable credit scores in order to close a home loan. there is so much information out there with regards to credit scores and what makes up the actual credit score, it can be very overwhelming. In order to get a mortgage loan, you need to have a minimum credit score of 620 for conventional loan financing. All other mortgage loan programs require a minimum middle credit score of 640. For the best mortgage loan financing, make sure credit scores have a clean credit profile.Here’s a little history about credit scoring with records to getting a home loan. Credit scoring was originally designed to provide mortgage lenders with information on consumers’ bill paying history and whether or not there was an ability to repay the mortgage.The reason why your credit score is so important is because it provides the most accurate picture for a creditor to determine how likely you are to be late on a debt obligation. here are the five factors that make up a credit score:• Payment history – 35 percent impact on the credit score. This involves simply paying debts on time and in full and has the highest impact on your credit score. Late payments, collections, judgments, charge-offs all pull a credit score down. In fact, nothing will make your credit score go up or down like a mortgage loan will.• High credit balances – 30 percent impact on the credit score. The magic factor is to make sure your credit card balances at any given point in time are no more than 30 percent of the total allowable credit line. that means, if you have a credit card with $1,000 credit line, you don’t want the balance on that account to ever exceed $300. Ideally, you should make an effort to keep credit card balances as low as possible or even at zero.• Credit history – 15 percent impact on the credit score. This represents the amount of time that credit has been established for. The longer the credit has been open, the more positive reflection on the credit scores.• Credit types – 10 percent impact on the credit score. The goal here is to have a mix of credit accounts. that means a combination of auto loans, credit cards and mortgages looks a lot better to the credit bureaus than only credit cards. Diversify your credit accounts. This doesn’t necessarily mean run out and get an auto loan, it just means having a mix of different credit types is a positive for a healthy credit rating.• Inquiries – 10 percent impact on the credit score. Multiple credit inquiries over time from different creditors within a six-month period can make the credit score drop. if you are shopping for a mortgage loan, you can have your credit run multiple times in a 30-day period and not have any adverse credit rating.Credit scores can affect mortgage loan financing Since your credit score is an indicator of how likely you are to repay your mortgage, lenders look at the range of credit scores, which realistically should be between 500-800. Lenders then are able to price out the mortgage loan according to your credit score. The higher the credit score, the better the interest rate; the lower the credit score, the higher the interest rate.A borrower, who successfully increases their credit score from 600 to 710, can easily save up to $500 per month on a new home loan. This also represents tremendous interest savings over the life of the 30-year term.Mortgage lenders look at three different credit scores. It’s called a “tri-merge credit report” and it’s the most accurate credit information available. Mortgage lenders look at Trans Union, Equifax and Experian and use the middle score from each of the three credit reporting agencies.Remember, a mortgage loan credit report is the most accurate credit report. A true credit report has the full credit history, all three credit scores, as well as a list and schedule of all creditors with their contact information. This means the credit report you get at the auto loan dealer is not the same as the mortgage you obtain through a mortgage lender. The auto loan credit report is Beacon Score, which is not a true measure of your credit scores. So what happens if there are problems with the credit scores? The first thing to do is to make sure your credit score is between 620 and 640 in order to procure mortgage loan financing. if it’s not, you have options for remedying the negatives to improve your credit score rating. here is a list of such actions:• Talk to your mortgage lender about a credit repair company. Most these days are quite flexible and effective.• Contact the creditors yourself and ask them to correct their credit report. Most of the time, they will need concrete information to do this.here are some tips to maintaining good credit scores while obtaining mortgage loan financing:• do not go out and make any large purchases with credit of any kind and do not make any large withdrawals of money from the bank either; wait until your transaction has closed.• do not pay off collections or old delinquent credit cards or charge-offs.• do not close credit cards during the transaction or at all. Simply don’t use them.• do not max out credit cards.• do not consolidate or transfer credit card balances from one card to another.• do not co-sign on someone else’s credit account. This means mortgages, auto loans, personal loans, student loans or any credit account.• do stay current on all existing credit accounts and avoid late payments at all costs, especially during escrow.if you are thinking about taking out a mortgage loan today and have credit challenges, let us know. if you have challenges associated with your credit scores, visit the link below to read posts which discuss the subject matter of credit scoring as well. www.sonomacountymortgages.com/mortgage-loans-credit-scores/#ixzz1guzZK6Cr.Scott Sheldon is an FHA specialist, a local lender who helps with refinancing and purchasing, and a Senior Mortgage Loan Originator with over six years of mortgage experience. he can be reached at 217-4000.

The Community Voice – Credit scores: the key to mortgage loan financing