Video Transcript: Credit Scores and Homebuying
[Enter Regina Lewis, AOL Consumer Advisor]
Regina: Thinking of buying a new home? Navigating the real estate market can be tough. Now it's time to get answers from the experts. Coming up, how to improve your credit score and get the house you've got your eye on.
Regina: We've all heard lenders today are more careful than ever before approving a loan. Certain factors, like credit scores, are invaluable to them when determining whether or not potential homebuyers will actually be able to pay back the loan. Turns out, there's a lot that consumers don't know about credit scores.
[Question from David, a renter and prospective homebuyer]
David: Hi, my name is David. I'm currently renting right now but would one day like to buy a house. I'm self-employed. I do have a lot of school debt right now, but have very little credit card debt. What does my credit score determine in me getting a home loan?
Alright, Lynnette, so there's the scenario. A lot of school debt, not a lot of credit card debt. What's he looking at?
[Enter Lynnette Khalfani-Cox, Personal Finance Expert]
Lynnette: Well, the credit score is essentially going to determine in part the rate he's going to get on his mortgage loan. Generally speaking, the higher your credit score is, the better the loan rates and terms are going to be from a lender. The most commonly used credit score from a lender's perspective are FICO scores. FICO stands for Fair Isaac Corporation, that's the Minneapolis-based credit scoring company that does scoring for all of us. And there is a three digit number – it ranges from 300 points to 850 points. The higher your score, the better off you are.
Regina: Gotcha. Alright, so when looking at those, they clearly are a factor. Would he better off having more credit card history?
[Enter Todd Dal Porto, Home Loan Enterprise Sales Executive for Bank of America]
Todd: Well, building on what Lynnette said, there are actually three credit scores available – three different credit bureaus, if you will. And a lender will assess the middle of those three scores. That's the one that's normally used for qualifying, etcetera. It ties into their minimum credit scores, depending upon a certain program. Once you've exceeded that minimum threshold, it's a plus, but it's just part of the equation that lenders look at.
Regina: Alright, so you're going to have to meet certain thresholds. You should expect to have to jump those hurdles. Alright guys, you can find more information on this topic, as well as this video in its entirety on demand on AOL Real Estate's "What Works Now" section.