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Low credit scores can delay home ownership

Zillow • Oct 16, 2013 at 4:07 PM

By S.E. Slack

Thinking of buying a new home? Your credit had better be good. Borrowers with less than a 620 credit score aren’t even receiving quotes, according to real estate firm Zillow. That means about 30 percent of Americans are unlikely to get a mortgage.

Borrowers with average credit scores greater than 740, however, receive the very best rates. Zillow based its information on its Mortgage Marketplace, which provides anonymous borrowers with live, custom quotes based on location, home price, down payment, income and credit score information.

With negative equity rates continuing to fall, more and more homeowners are seeking home equity loans. Obtaining a lower interest rate is the most popular reason to refinance, but sometimes homeowners are looking for cash to pay off debts. Other borrowers just want to get out of town and make a fresh start in one of America’s most livable communities, like Ft. Worth, Texas.

Negative information stays on credit reports longer than most realize. A collection account, for example, can remain on a credit report for seven years from the initial missed payment that led to the collection. Public records such as bankruptcies and judgments can pester you for as long as 10 years. Even simple inquiries from a lender checking your credit can linger for two years and keep your score down.

Credit scoring firm Experian states that potential grantors try to predict whether or not you’ll pay your debts on time by evaluating your character, capacity to repay and any collateral you might have. If you’re having trouble raising your credit score to that desired 620 or above, look at your existing credit relationships to see where you can make improvements. Creditors will see a dozen credit cards as a high risk. Determine if you can cancel or combine most of them to reduce the danger.

Credit scores might be pesky but they are necessary, according to Experian. If yours is just points away from where you want it to be, ask the lender if they will reconsider with a larger down payment on your part. Placing 20 percent or more down on any kind of home loan can sometimes persuade a lender to take on the risk of a lower score.

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