Credit Grades, what are they?

Credit Grades, What are they? How does it affect my getting a home loan?

Credit grades are the way mortgage/lender companies often grade your loan based on certain items. These items include payment history, amount of debt payments, bankruptcies, equity position, and your fico score. Here is a guide to help you estimate your score. Remember this is only a guide. Many mortgage/lender companies have exceptions that may affect the outcome. These results may be stricter or more lenient depending on their guidelines.

A General Guide to Credit Grades below:

A+ to A- Group:

Debt Ratio: 28/38

Maximum LTV Ratio: 95%

Additional Requirements: Good/excellent credit grades during last 2 to 5 years. No bankruptcy within the last 2 to 10 years. Mortgage: Credit Score 670+, 0 times delinquent within the last 24 months. Installment Loan: Credit Score 660, 0-1 times 30 days delinquent within the last 12 to 24 months.

Revolving Credit: Credit Score 660, 0-1 times 60 days delinquent within the last 12 to 24 months.

B+ to B- Group:

Credit Score: 620

Debt Ratio: 50

Maximum LTV Ratio: 75% to 85%

Additional Requirements: No 60-day mortgage lates. 24 - 48 months since bankruptcy discharge. Higher number of rolling lates may be allowed. Mortgage: 2-3 times 30 days delinquent within the last 12 months.

Installment Loan: 2-4 times 30 days delinquent within the last 12 months. Revolving Credit: 0-2 times 30 days delinquent within the last 12 months.

C+ to C- Group:

Credit Score: 580

Debt Ratio: 55

Maximum LTV Ratio: 75%

Additional Requirements: 12 - 24 months since bankruptcy discharge. High "rolling" lates allowable.

Mortgage: 3-4 times 30 days delinquent within the last 12 months and 0-2 times 60 days delinquent within the last 12 months. Installment Loan: 4-6 times 30 days delinquent within the last 12 months and 2-4 times 60 days delinquent within the last 12 months.

Revolving Credit: 4-6 times 30 days delinquent within the last 12 months and 2-4 times 60 days delinquent within the last 12 months.

D+ to D- Group:

Credit Score: 550

Debt Ratio: 60

Maximum LTV Ratio: 65% to 70%

Additional Requirements: Bankruptcy discharge within last 12 months. Judgments to be paid w/loan proceeds. Not in foreclosure.

Mortgage: 2-6 times 60 days delinquent within the last 12 months. Poor payment record with limited 90 day, isolated 120 day.

Installment Loan: 1-2 times 60 days delinquent within the last 12 months. Poor payment record with limited 90 day, isolated 120 day.

Revolving Credit: 1-2 times 60 days delinquent within the last 12 months. Poor payment record with limited 90 day, isolated 120 day.

E Credit Grade Group:

Credit Score: 520

Debt Ratio: 65

Maximum LTV Ratio: 50% to 65%

Additional Requirements: Possible current bankruptcy, foreclosure, stable current employment.

Mortgage: Poor payment record with a pattern of 30, 60, and 90+ lates. Installment Loan: Poor payment record with a pattern of 30, 60, and 90+ lates. Revolving Credit: Poor payment record with a pattern of 30, 60, and 90+ lates. The figures shown here are estimates. When trying to figure your credit grades, keep in mind the following principles:

Other Things Being Equal

When you have bad credit, all of the other aspects of the loan need to be in order. Equity, stability, income, documentation and assets play a larger role in the approval decision.

Worst Case Scenario

When determining your credit grades, various combinations are allowed, but the worst case will push your grade to a lower credit guide. Late mortgage payments and bankruptcies are the most important.

Going Once, Going Twice

Credit patterns are very important. A high number of recent inquiries and more than a few outstanding loans may signal a problem. A "willingness to pay" is important, thus late payments in the same time period is better than random late payments as they signal an effort to pay even after falling behind.

For further information on credit grades and credit repair, click here.