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When you’re looking
for a new mortgage or a home equity line of credit, like
many lenders, New Alliance Mortgage evaluates your
credit based on the "Three C's."
Credit
Is it likely that you will repay the
loan? Are your payments on time and up-to-date? Are you
financially stable and reliable?
Capacity
Are you able to pay the loan? What
kind of outstanding debt do you have? Do you have enough
earning power and net worth to repay a mortgage or home
equity line of credit?
Collateral
Do you own something of value that
can be promised to the lender if you don't repay the
loan? There are a few more factors mortgage lenders look
into when evaluating your capability of obtaining a
loan. To confirm your responsibility and stability they
may examine:
 | Your monthly income
|
| Occupation and
length of time with employer (two or more years is
ideal) |
| Homeownership status
and history |
| How often you move
or have moved; patterns of behavior and the timing
of that behavior
|
And there are
other examples, such as, if you had a charge-off (when
the creditor sells your debt to a collection agency) in
your credit file from several years ago and you've been
able to maintain your credit over the years, you will be
judged differently from someone who recently had a
charge-off.
But whatever the case, it's
imperative to get off on the right foot
when building your credit. It is important to
establish good credit behavior as early as you can in
order to build a solid credit reputation. See Building
Great Credit for some helpful tips.
Essentially, credit bureaus will look
for five main characteristics when determining how high
your credit score will be.
In descending
order, they are:
- Past delinquency. If you have
failed to make payments in the past, lenders fear
you will repeat that behavior.
- How your credit has been used.
Have you maxed out or spent close to the limit on a
credit card? If so, then you may be considered a
greater risk than someone who is more conservative
with his or her credit line. Do you pay off your
bill every month or a keep a revolving balance?
- Your age. The scoring models can
judge each individual separately. Thus a
20-year-old's credit history would not be compared
to a 45-year-old's credit history.
- Frequency of credit inquiries. It
is recommended that you check your credit once a
year. Creditors' requesting reports several times in
a short period may send a signal that you are
applying for a lot of credit due to financial
difficulties, or that you are taking on too much
debt and overextending yourself.
- Your credit variety. It is best
to have a mix of installment and revolving loans
(e.g., auto, credit cards, retail, etc.). On
installment loans, a person borrows money once and
makes fixed payments until the balance is gone,
while revolving borrowers make regular payments,
each of which frees up more money to access.
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