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| How important is your
credit score |
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Whenever someone is applying
for a mortgage loan, he or she usually has many questions.
The main concern is usually about what contributes to
the result of certain rates.
It is well known that one of the main factors that determine
your rate is your credit score. But how much does your
credit score really factor into whether you are denied
or accepted, and your rates?
The article, “A Risky Proposition - How Your Credit
Score Does Matter!” posted on affordableconcretecutting.com,
examines why and how your credit score affects your mortgage
loan.
“Nearly 100 percent of all mortgage lenders assess
your credit score when determining whether to grant you
a mortgage. If you plan on ever obtaining
a mortgage, purchasing car or even acquiring homeowner's
insurance, expect lenders to examine your credit score
very carefully.”
Obviously then, the worse your credit score correlates
to the lesser chance you will be approved for a mortgage
with low rates.
Why do you have a low credit score? You should understand
how your credit score is calculated since it directly
affects you.
“Your FICO score (FICO, by
the way, stands for Fair Isaac Company-the institution
that created and compiles the score) is calculated using
several data pulled from your financial records. These
include: the number and types of credit cards you use,
your payment history, the amount of money you owe, the
number of years you've had a history on file, and whether
you have any new credit.”
What you probably want to know the most is the dynamics
of what affects your score the most, the least.
About 35 percent of your credit score is determined by
your payment history. “Your payment history refers
to a number of factors, including the different types
of payments you regularly make (examples of payments include
standard major credit cards, department store credit cards,
mortgages, and car loans), and whether you have missed
or paid late on any payments.”
If you do not have much debt and generally make your payments,
your score should be within the higher percentiles. Conversely,
if you have a history of missing payments or have filed
bankruptcy, foreclosure; your score will fall to the lower
percentiles.
Debt is the other major contributing factor to your credit
score. Again, it is obvious that the more debt you have,
you lower your score will be.
But there are different types of debt, such as credit
card debt and mortgage loan debt.
Credit card debt will lower your score more than mortgage
debt because credit card debt is viewed as more of a consumer
controllable debt.
“Mortgage lenders can
interpret a low credit score to mean that you have a high
amount of outstanding debt and a history of missing payments
(or both). Even if you are approved for a mortgage, chances
are that a low credit score will saddle you with a very
high interest rate. Before you approach a mortgage lender,
be certain you know your credit score.”
You will have an understanding of what to expect when
you apply for a loan, if you know your credit score. This
can also be used to prevent lenders from charging an obscene
rate or interest. |
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