A Good Credit Score

A Good Credit Score

Credit Analysis – What Is It?

When a mortgage company looks at your loan request, they are looking at three characteristics known as the Three C’s of Credit. These characteristics are character, capacity and collateral.

It is not unusual for a lender to look at credit reports from all three credit reporting agencies: TransUnion, Equifax or Experian. They will look at your credit history and paying habits to determine your character.

All three Credit agencies use credit scores that reflect a three digit number based on your borrowing habits: how well you pay your creditors and how often you apply or open credit. If your credit score is high the creditor considers you to be of better character or risk than someone with a low score.

Let’s look at collateral. The lender wants to see what you have for collateral. A borrower with more collateral (equity) has a better chance of getting a loan than someone with less collateral. Secondly, if you have more assets, pledged or not, the lender will look more favorably at your loan request. When completing a loan request, you should list all assets.

Capacity: Capacity means simply your ability to repay a loan. Lenders calculate a debt ratio to see how likely you will repay the loan. In mortgage underwriting the underwriter will look at two ratios known as your front and back ratio.

Your Front ratio is your total housing expense which includes Principle and Interest, Taxes, and Mortgage Insurance divided by your gross monthly income. If your monthly gross income is $4000 and your Housing expense is $1102; your front ratio is 27.55%.

The Back ratio is your housing expense (PITI) plus all other revolving and Installment account payments divided by your gross monthly income. People with lower debt ratios have a better chance of being approved and in most cases receive a better interest rate.

All three; character, collateral, and capacity play an important part in obtaining credit. If you have higher credit scores, more assets, and lower debt ratios you are more likely to be approved and should receive the best interest rates on that type of loan.

Don’t let the media influence your decision to refinance or purchase a home now. Jerry Sanders says the mortgage market is great and the interest rates have never been lower. Apply on line today at Peach State Mortgage or call 800 533 0728 for a free consultation. Licensed in FL, GA, and TN.

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