When you apply for a mortgage or home equity loan the mortgage lender will use your credit score to determine how much of a financial risk you are and what interest rate to charge you. Many homeowners do not know their credit score or understand how it is derived; these homeowners overpay their finance charges as a result. Here is what you need to know about your credit score before applying for a loan. Mortgage lenders use your credit score from the Fair Isaac Corporation. This credit score is referred to as your FICO score. FICO credit scores range from 300 to 850. If your credit score is less than 620 you are considered to have poor credit and are a risk for lending. If your credit score is 720 or greater you are considered to have excellent credit; if you have excellent credit you can negotiate for just about anything you want with your mortgage. If your credit score is in the neighborhood of 500 you can still qualify for a mortgage; however, you will pay much more for nearly all aspects of the loan. There are mortgage lenders that specialize in poor credit mortgage loans; however, you may need to enlist the help of a mortgage broker to find a loan that is right for your individual situation. As a homeowner it is important to stay on top of your credit score and your credit history. Check your credit reports with the three credit agencies carefully for errors. If you find errors in any of these reports you will need to dispute them. Also, make sure you are making all of your payments on time. A large portion of your credit score is derived from your history of on-time payments. Another way to improve your credit score is to lower your debt-to-income ratio. Pay down the balances on your credit cards and avoid making large purchases prior to applying for a mortgage or home equity loan. To learn more about your your credit, mortgage options, and how to avoid common mortgage mistakes, register for a free mortgage guidebook. |
