The global economy has changed over the last years and it is mostly reflected on the mortgages market. Many properties lower their prices so much that the mortgages are more expensive that the houses themselves. There is also another problem: your credit score. Many people had lost their jobs and could not pay the loans on time. These made credit scores go down abruptly and the big part of people trying to refinance a mortgage as a very bad credit score.
The Fair Isaac Co., invented the FICO scoring system which is the most used by banks and lenders. This goes from 300 up to 850.
Although each institution has its own credit report requirements 500 – 520: is generally the minimum score required to qualify for a mortgage.
In general, the FICO credit score is like this:
Any number from 760 to 850 = Great credit report
Any number from 620 to 760 = Good report
Any number from 500 to 620 = Will depend on the institution
Any number less than 500 = Bad credit report
Banks are very cautious and ask for a credit report over 760 for a mortgage refinance, but high risk lenders appeared in the market thanks to these situations.
High risk lenders can give you a mortgage refinancing with credit reports as low as 500, although individual lenders may require a minimum or at least 620 and, as we pointed before, banks requirements are higher: 760 or more.
All the credit bureaus and lender institutions use the same formula to arrive at their credit scores numbers, many can use a different name for that, but the important thing is the formula, which joins all your credit history. This number is composed by individual ratings in five categories:
1. Payment history (35% of the rating)
2. Length of credit history (15%)
3. New credit (10%)
4. Types of credit used (10%)
5- Debt (30%)
As you can see, your income is not a factor. However, your score may vary slightly between the lenders, because each has different information in your file.
While scores are important, they are not the only thing lenders take into consideration when approving a mortgage. And low scores are not insurmountable obstacles
Many people with bad credit try to get a credit repair first. But this credit score is a report of your past financial performance, not your current debt load. So, this can be useful if you wait until your present become your past.