Credit
Credit what is it and how do you establish it?
Recently I visited with a young couple who was looking to be preapproved for an FHA home loan so that they could buy a home. Their excitement was apparent as we went through the application and discussed the different first time homebuyer benefits and options that are currently available. Unfortunately, the excitement soon dissipated when I pulled their credit report. The couple thought that they had been able to build good credit history, but they were wrong. The husband’s credit scores were below 500 and the wife had no credit scores at all.
Know What You Are Trying to Accomplish
If you fail to plan, you plan to fail. For that reason, the first step is to know what a credit report is and how it is derived. By understanding what the goal is, you can work to obtain it.
Know the Common Credit Qualifying Criteria
What FHA loan requirements are a lender going to look at when deciding to issue you credit for an FHA loan? On almost all FHA loan applications banks want to see that you have the capacity to repay the debt. So, if you don't have credit history with regard to FHA guidelines a lender will look at your assets, stability, and income (or earning potential).
How Do You Actually Get The First Accounts On Your Credit History?
Utilize Someone Else’s Credit. The easiest way to start building your credit history is to utilize someone else’s credit that is already established. If you know someone, such as a family member, that you trust (and they trust you), you can be added onto an existing credit card as a joint account holder. This will include the credit card history into your credit report. Obviously, there is risk in doing this. If the person has previous late payments or suffers from more late payments, this information will go on your credit also. The same applies to maxed out credit limits. So, it could be a good and a bad thing; and therefore, you need to choose wisely.
Move Forward
Remember now that you know how to be approved for credit you must build credit with a plan in order to qualify for an FHA home loan under today’s current FHA guidelines. It is crucial that you do not make avoidable mistakes as this will affect your buying power for years to come.
What is a Credit Score?
Credit Score: A statistically derived numeric expression of a person's creditworthiness that is used by lenders to access the likelihood that a person will repay his or her debts. A credit score is based on, among other things, a person's past credit history. It is a number between 300 and 850 - the higher the number, the more creditworthy the person is deemed to be.
How is a Credit Score Derived?
Now you see that there are three different credit bureaus that report your credit history independent from each other and that they each assign you a credit score that can range from as low as 300 to as high as 850. So how do they do it? In the US, credit bureaus typically use a credit score model called the FICO system. FICO uses mathematical algorithms and statistical models to create your credit score. Although the exact formulas are not made public, the following components have been disclosed.
Bankruptcy, Foreclosure and Short Sales
Many people have recently asked, what are the FHA loan requirements with respect to the waiting period after bankruptcy, foreclosure or a short sale? In answer, here are the FHA guidelines related to bankruptcy, foreclosure and short sales.