So, take heart knowing that it may still be possible to get a loan for a refinance or home purchase, or even take cash out of your current home. In the end, even if you have charge-offs, collections, or tax liens on your credit report, you can still get a loan as long as you meet the specific guidelines for approval.
Historically, the lending industry has used specific categories to assess the credit risk of any particular borrower. If the property checks out and you have sufficient income, impeccable credit and the required down payment you are considered an "A" borrower. An "A" borrower can walk into almost any lender and get a mortgage loan. A borrower can fall short in one of these areas and still be considered an “A” borrower, as long as the other areas can compensate for the weakness. For example, a borrower that exceeds the required monthly debt-to-income ratio (28% housing debt and 36% combined debt) could offer a large down payment. Many lenders will also excuse modest credit “blemishes” if a reasonable explanation is provided (i.e. job transition, medical problems). Being 30-60 days late on one credit card payment is a typical blemish that could be accepted by a lender, as well.
But what if you have more serious marks against your credit? Depending on how tarnished your credit history has been, lenders will typically place you into one of the following credit categories, which are qualified by time frames.
A-minus Credit
Acceptable blemishes within the last two years: charge-offs, or collection accounts, of minor amounts (e.g. less than $500 in all) are acceptable. Medical bills, including hospitalization and doctor visits, are usually disregarded by the lender. As for payment habits, you can have no more than two 30 days late payments, or one 60 days late payment on revolving or installment credit.
B Credit
Acceptable blemishes within the last 18 months: Up to four 30 days late, or up to two 60 late days payments are allowed on revolving and installment debt. If the credit ding is an isolated incident, a 90 days late payment is allowed within the last 12 months. Charge-offs or collection accounts which are isolated, insignificant and less than $1,000 in all, are acceptable. However, outstanding collection accounts less than four years old must be paid. Bankruptcy or foreclosure that had been discharged or settled previous to the 18-month time frame is allowed.
C Credit
Acceptable blemishes within the last 12 months: No more than six 30 days late payments, three 60 days late payments, or two 90 days late payments are allowed on revolving or installment credit. Open collections accounts and charge-offs may not exceed $4,000 and must be paid in full. Bankruptcy or foreclosure that had been discharged or settled prior to the last 12 months is acceptable.
D Credit
Individuals in this class will demonstrate sporadic disregard for timely payment or credit-standing categories. Open collections accounts, charge-offs, and judgments must be paid through loan proceeds. Someone who had filed bankruptcy and had been discharged prior to the last six months is acceptable, as much as the ex-homeowner who had his previous home foreclosed and settled prior to the last six months. However, mortgage payments cannot be longer than 90 days past due.
No one is perfect. We all make mistakes or just hit a run of bad luck. Whatever your credit situation may be though, we’re here to listen and help. So pick up the phone and give us a call at 1-800-734-REFI. Our loan experts are always available to further help you understand the ABCs of A, A-, B, C and D credit.
