We know about credit scores and we know about mortgages. We know that credit scores can make getting a mortgage, or at least a good mortgage rate, difficult. The reality of modern times is that everything is known as numbers. Our lives are monitored by them all the way from our school days through retirement.
How we manage the numbers of our lives is a big deal. Perhaps one of the greatest numbers of our lives is our credit score; this number is monitored by credit bureaus and the three major ones are Equifax, Trans Union, and Experian.
How is your credit score determined? Our scores are figured out by utilizing a formula that was created by the Fair Isaac Corp. The amount of factors that are put together to create your credit score are quite numerous; however, some of the major factors that are used are: your amount of credit, your payment history, and your type of credit. Your credit score will fall between 350 and 900; clearly, the lower the number, the worse your score is and signals to lenders that you are much more of a lending risk. If you have a lower score and are labeled as a riskier lending option, then your mortgage rate will be much higher than someone who has a credit score that is higher, like above 640 but especially higher than 760. The opposite is also true, if your score is higher and are therefore a more secure lending risk, you will be given a much lower mortgage interest rate.
People who have credit scores between 760 and 900 are often given the best mortgage rates and have an easier time obtaining a purchase mortgage or refinancing a mortgage. If you have a credit score that is lower than 620, you are in the “subprime category” and will have to obtain special mortgages as traditional ones will be very difficult to get, if at all.
Anyone who has a credit score of 500 or lower will most likely not be able to get a mortgage without having a rather sizeable down payment. However, these people can get a mortgage through a “hard money” lender who will give a mortgage no matter what the applicant’s credit score is but the applicant will have to place at least 50 percent cash down for the purchase.
The bottom line is that you really, really should take care of your score. If it is already in bad shape, then follow steps to get it back on track.
By John Benson