If you are applying for a home loan, there are
several factors you must go into before making the final decision. Some of
those factors include your employment history, saving balance, and the size of
the loan. Even with these factors, one of the most important parts of your home
loan application is your credit score.
several factors you must go into before making the final decision. Some of
those factors include your employment history, saving balance, and the size of
the loan. Even with these factors, one of the most important parts of your home
loan application is your credit score.
How Credit Scores are Factored
Stated by a credit repair Houston
expert, your credit score comes from a model called FICO. This model places your credit score in a range between
300 and 850. Anything below 579 is considered poor, and good credit is 670 and
higher. Exceptional credit is 800 or higher.
expert, your credit score comes from a model called FICO. This model places your credit score in a range between
300 and 850. Anything below 579 is considered poor, and good credit is 670 and
higher. Exceptional credit is 800 or higher.
Credit scores are based on
a few factors. The FICO score includes five categories:
a few factors. The FICO score includes five categories:
● Payment history
● Amounts owed
● Credit history
● New credit
● Mix of credit
The categories are not
weighted equally. Payment history and amounts owed make up 65% of your credit
score.
weighted equally. Payment history and amounts owed make up 65% of your credit
score.
Lenders have the final say
in whether or not you get a home loan. In many cases, you can get a home loan
even if your credit is mediocre. But, your credit score will affect the terms
of the loan. For example, people with higher credit scores, especially in the
exceptional range usually get lower interest rates than those in the good
range.
in whether or not you get a home loan. In many cases, you can get a home loan
even if your credit is mediocre. But, your credit score will affect the terms
of the loan. For example, people with higher credit scores, especially in the
exceptional range usually get lower interest rates than those in the good
range.
Saving Money with a High Credit
Score
Why does this matter? Mortgages usually last for
15, 20, or 30 years. So, interest rates matter. Consider the differences in
payment for a $200,000 home loan. If you get a loan with a 4% fixed interest
rate, your monthly payment over the course of 30 years is $955. When you are
finished with the loan, you will pay $343,800 for the loan.
15, 20, or 30 years. So, interest rates matter. Consider the differences in
payment for a $200,000 home loan. If you get a loan with a 4% fixed interest
rate, your monthly payment over the course of 30 years is $955. When you are
finished with the loan, you will pay $343,800 for the loan.
But if you get a better rate of 3%, your monthly
payment goes down significantly. Instead, your monthly loan payment is $843.
After 30 years, you will have to pay $303,555 for your home.
payment goes down significantly. Instead, your monthly loan payment is $843.
After 30 years, you will have to pay $303,555 for your home.
When your credit score is high, you could save over
$40,000 through the life of your loan, and you have $112 more per month to
spend on other things.
$40,000 through the life of your loan, and you have $112 more per month to
spend on other things.
What Happens If Your Credit
Scores are Low
Since lenders are in control of whether or not
you get a home loan, your credit score could force them to ask you for a co-signer.
Lenders use your credit score to determine their risk. Even though FICO is the
organization that determines the score, it is reported by different agencies.
Each agency has a slightly different way of reporting, so your credit ranking
could vary.
you get a home loan, your credit score could force them to ask you for a co-signer.
Lenders use your credit score to determine their risk. Even though FICO is the
organization that determines the score, it is reported by different agencies.
Each agency has a slightly different way of reporting, so your credit ranking
could vary.
If you are unsatisfied with the score your lender
used, you could ask them to pull a credit report from a different agency. You
might also want to check your credit score to see if it is accurate. It is
common for errors to appear on credit scores.
used, you could ask them to pull a credit report from a different agency. You
might also want to check your credit score to see if it is accurate. It is
common for errors to appear on credit scores.
Keep in mind the way that credit scores are tabulated.
Since credit scores value payment history the most, a few late payments – even
just a few days late – could negatively affect your score. It can take time to
increase your credit score; the best way to do this is to make payments on
time, every single month.