Credit: Understanding The Basics

At Countrywide Bank's Full Spectrum Lending Division, we think learning the basics of good credit is the first step in helping to rebuild your credit, so you can get the best loans and interest rates available.

When people talk about good credit, they are generally referring to the good reputation of a borrower who pays bills regularly and on time. A good credit record makes future lenders such as home loan companies or banks confident that you will be able to make payments on time.

To ensure continued good credit, make sure that you don't overextend yourself financially. Credit cards with large limits are especially tempting. Don't think just because you're able to borrow the money that you're able to repay it! If you borrow so much that you can't afford to make regular payments, you're putting your good credit record at risk.

Benefits Of Good Credit

Good credit makes it far easier to qualify for a loan. Because lenders approve and price loans based on risk (in general, the likelihood a borrower will timely repay the loan), this also means you could enjoy a lower interest rate because you qualify in a lower risk category!

Take a look at the following points to help you understand credit and credit ratings. It'll help you to avoid damaging your credit reputation.

The unfortunate thing about credit problems is that they don't just disappear overnight. Credit repair takes discipline and time to fix, and late payments on your car loan last year can still have a negative effect on your credit history today. Major credit problems, like bankruptcy or a loan default, could negatively affect your credit record for years to come.

Lenders evaluate how risky it is to lend money to people, and how likely a person is to make payments on time. Some lending institutions lack the ability to help sub-prime borrows find the prime loan of their dreams. At Countrywide, we understand that life can throw some curve balls. We take your full story into account, and have an array of home loan options to meet many situations.

To evaluate credit risk, lenders usually look at:

Income - Regular and proven income from your salary, commissions, investments, rental income or similar earnings play a big role in what size loan you can qualify for. A stable income and employment track record go hand in hand with this. Some lenders are better equipped than others to handle hard-to-document income or self-employment.

Assets - Savings, investments, retirement funds, cars and other large assets that are liquid (easily converted into cash) will also play a significant role in qualifying you for a loan and how big of a loan. Again, some lenders are more flexible than others regarding how assets are documented, so it pays to shop around.

Liabilities - Liabilities are debts such as personal loans, mortgage loans, car loans, student loans or credit card debt. These will also be considered when a lender is calculating your qualification for a loan and potential loan amount, to keep you from getting over your head.

Other financial information - Child support obligations, lawsuits and claims against you, collection activity or recent bankruptcy can all influence whether you qualify and the size of a loan.

Payment history - Making car, credit card or other payments late is a major factor included in your credit score. For example, if you paid thirty days late even once, it can affect both your maximum loan amount and the interest rate you could get. Not all lenders evaluate payment history the same way. Some focus on mortgage payment history, for example, and are more flexible toward late payments on other types of loans.

Credit reports - As part of reviewing your payment history, lenders order credit reports for each borrower. National credit bureaus collect data from many sources including lenders to establish your "credit-worthiness," and produce reports and credit scores to help lenders decide whether to approve new loans.

Debt-to-income ratio - Your income and monthly expenses are used to compare the amount you owe to the amount you earn. This is called a debt-to-income ratio or DTI. While no official or uniform standards exist, there usually is a maximum percentage of income that a lender will allow a borrower to have committed to repay existing debt. Exceeding that ratio could put the borrower at risk of damaging their credit and/or not qualifying for a loan.

These factors influence your credit record; so use them as a guideline to improve your credit score.

The good news is that anyone, regardless of their financial history, can improve their credit record over time. Explore your mortgage options with a FREE, no obligation loan consultation from Countrywide’s Full Spectrum Lending. Call today at 1-800-909-8217.