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Your credit rating is one of those things that can either
be your best friend or your worst enemy. Having a good
credit rating is essential to getting a home equity loan.
Your credit rating is affected by many of your day- to-
day financial activites. Lenders use this information
to determine the likelihood of you paying off the loan.
Credit History - a record of the relationship
with current and past debtors. It keeps track of payment
history, outstanding debts, and collections. Negative
reports on credit history will negatively affect your
credit rating. It is a good idea to get a copy of your
credit report and review it to make sure all information
is accurate.
Debt-to-Income Ratio - a calculation
of income against the monthly payments made to creditors.
This generally only includes debts like mortgage, car
note, credit cards, and other outstanding loans. A high
debt to income ratio will negatively affect your credit
rating.
Loan to Value (LTV) Ratio - a calculation
of the amount of the loan versus the actual value of the
home. If current mortgage(s) on your home are too close
to the appraised value of your home, it negatively affects
your credit rating. A lender will be more inclined to
grant a loan request to a person with lower LTV ratio.
Employment History - a record of the
employment that tracks job stability. Lenders use this
to track your income, and to see if you have had any gaps
in employment . They also try to determine your potential
income along with likelihood of future employment gaps.
Credit Report - a formal document issued
by credit reporting agencies. These agencies keep track
of the relationship with debtors and handle disputes and
errors on your credit history. It is recommended that
you review your own credit history before you apply for
a loan. Finding out what your score is, and knowing what
major items a lender will look at, could give you an advantage.
A free copy of one's credit report is available every
year. If you would like to view your credit report, and/or
dispute any entries on your credit report, contact one
of the three major credit reporting agencies listed below:
| Trans Union: |
800-916-8800 |
| Equifax: |
800-685-1111 |
| Experian: |
888-397-3742 |
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