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.