Home Equity Line of Credit and Your Credit History
October 5, 2007 – Lenders want to make the loan, but only if they can bundle it with other loans and sell the paper. That’s how they make money. And that necessitates institutionalized parameters regarding the features of any loan. Those features are the credit worthiness of the borrower, the loan to the value of the asset (LTV) and the terms of the loan.
The lending institution considers your credit worthiness when deciding whether to extend a loan and how much of an interest rate you will pay. Your creditworthiness boils down to three things: your credit history, your income and the loan-to-value ratio.
Credit history
Credit bureaus collect information from multiple sources about the amount of debt you have and whether you are timely in your bill paying. They compile this information into a file called a credit report, and then boil all this down to a number between about 300 and 850. That number is your credit score. Sometimes it’s called a FICO score, after Fair Isaac Corp., the company that pioneered credit scoring.
You should know how to obtain your credit report and understand it. You can buy your FICO score directly from Fair Isaac. Federal law entitles you to one free credit report per year. The report and the score may be bundled together or offered separately.
Your credit report contains:
• personal information used to identify who you are, such as your name, address and Social Security number;
• credit history, such as how much you owe, the amount of your credit limits, when you opened your accounts, whether you closed accounts or the creditors closed them, and whether you paid on time and the number of 30, 60 and 90 day late notices;
• public records, such as foreclosures, liens, repossessions, whether you have any bankruptcies, or legal judgments against you (including failure to pay child support or taxes); and
• lists of recent credit inquiries. This is one you should be concerned about. Too many applications make you look desperate and lowers your score. Lenders will tell you anything to get to pull your credit.
If you don’t agree with statements recorded in your credit report you can add explanations to your credit report and we will get into that in a future article. But unfortunately getting anything removed from your credit report is not impossible but is rather difficult and time consuming.
These are the considerations banks view when you apply for a home equity line of credit.
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