Understand Your Credit Score
August 20th, 2014
August 20th, 2014
If you’re purchasing a home and applying for a mortgage loan, lenders look at your credit score to evaluate your credit worthiness and determine whether they’ll give you a loan.
Your credit score is a three-digit number that’s calculated based on information from your credit report, including your personal information, financial history and how well you’ve managed your finances and debts in the past. Basically, your credit score tells lenders how you’ve handled credit before and how you’ll likely handle it in the future if they were to give you a loan.
There are many different credit scores used by lenders, but the FICO (Fair Isaac and Corp.) Score is the credit score most commonly used by the main credit reporting agencies – Equifax, Experian and TransUnion. Based on a proprietary mathematical equation, your FICO Score is calculated from information on your credit report that’s compared to information on hundreds of thousands of credit reports to determine your level of credit risk. Your FICO Score can range from 300 to 850. Generally, the higher your score, the less risk lenders perceive you’ll be. For example, while a score between 660 and 759 can qualify you for a decent mortgage loan rate, a score of 760 or higher can help you obtain better rates.
Therefore, it’s important to know your credit score before applying for a mortgage loan. Your credit score can effect:
For example, if you have a low credit score, you may be denied a mortgage loan or have to pay higher interest rates since you’ll be perceived as a greater credit risk.
Also, you need to realize that your credit score can change as your credit history changes over time. So if your credit score is not where you want it to be right now, you can do things to improve your score, such as correcting errors on your credit reports, paying your bills on time and reducing the amount you owe to lenders.
However, while lenders look at your credit score to help them decide whether to lend you money or not, your credit score doesn’t specifically tell them whether you’ll be a “good” or “bad” customer. Every lender has their own criteria they use in determining who they will loan money to.
If you’re looking to purchase a new home, contact the mortgage specialists at Grandview Lending in Indianapolis. They can take a look at your credit score and help to find you the best mortgage solution based on your needs and credit history.
Photo credit: iStockphoto/Courtney Keating, Veridium Photo
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