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Chrisman's Corner: Spring Credit Advice

JMAC’s brokers know that spring traditionally is the start of the home “purchase season”. Unlike strawberries, kittens, or professional sports, there is no defined season for buying a home. But because of weather, school years, and general trends, purchases tend to pick up in the spring and into the summer, and tend to tail off in autumn and go dormant in many states during the deep winter. So when a borrower contacts a broker about a purchase, there are three pieces of information that the broker wants: credit, income, and down payment.

Let’s focus on credit, because the past history of a borrower will determine what type of loan they can obtain now, whether it is a purchase or a refi. Credit worthiness is measured by credit scores, and LOs will tell every borrower that they must do everything possible to protect his/her credit. A leader in this is Fair, Isaac Co. which developed a scoring system for credit reports (FICO) but each credit repository now has its own credit score model.

FICO scores vary from 300 to a high of 850. Why do home loan lenders pay so much attention to these scores? There is a 1 in 8 chance that a borrower with a FICO score below 600 will be either severely delinquent or in default of their loan versus a 1 in 1,300 chance that a borrower with a score above 800 will have similar problems.

The best way for a borrower to have and maintain a good credit score is relatively simple. First, never be late on a home loan. Second, avoid having any late payments – a recent late on a credit card even one with a small payment can knock 40 points off scores. Borrowers should try to avoid a sudden surge of credit activity, meaning not opening new accounts and not making applications for credit that they have no intention of using, nor tapping out credit usage – using more than 40% of a credit line negatively impacts a credit score. Lastly, they should be careful about medical and dental co-payments. They are unlike other bills because they often come late and are less than clear.

Borrowers are often advised by JMAC’s brokers to check their own credit throughhttps://www.annualcreditreport.com/cra/index. This site enables borrowers to obtain a free credit disclosure from each of the 3 repositories once a year, and instructions for disputing any issues.