How Does Your Score Stack Up?
Your credit score is a 3-digit number ranging from 300-850 and is a rating of risk. A credit score gives a potential lender some idea of how likely a person is to responsibly repay a loan. Borrowers with a higher credit score tend to get the most favorable lending terms like a lower interest rate because the lender feels less risk. A poor credit score may cause a potential borrower to be turned down or forced to accept a higher rate of interest as an incentive for the bank to take on a riskier investment. All lenders have different requirements when they decide to extend credit to borrowers and a credit score is only one facet they look at. They also consider your employment history and other personal factors.
Everything You Need To Know About Credit Scores
The first question any potential homeowner is asked when talking with a lender is “How good is your credit?”
What Is a Good Credit Score For a Home Loan?
There is no one perfect number that will guarantee you will get a loan or will get you turned down. Anything above 580 is a possibility and even lower scores are definitely considered with some lenders if you can show a strong employment history. Generally a 640 score is enough to qualify for a home loan. 700 is considered a good score, and anything over 760 is considered excellent.
What Credit Report Do Banks Use For Home Loans?
Lenders use all 3 credit bureaus and will generally take the middle of the 3 scores. Mortgage lenders will often score differently from the consumer credit sites. This is because the mortgage credit score model is slightly different from your consumer score. This is why it’s important to have a mortgage lender check your credit as it can be the difference between qualifying or not.
How To Fix Bad Credit For Home Loans?
Your credit score is a snapshot in time. This means once you are able to improve something on your credit, once that’s reported to the bureaus your credit score will improve immediately. The easiest way to improve your score is to pay down revolving debts like credit cards. The larger percentage of the credit limit you’re using on your credit cards, the more it will lower your score.
How To Get a Home Loan With Bad Credit?
Many lenders have options for would-be home buyers to get a mortgage even when they have low credit scores. Your lender can give you details on what they can do for you. A 580 credit score can possibly get approved for a loan. A 640 score is almost always good enough to approve for a loan.
The 3 Credit Bureaus Who Monitor Credit Scores
Experian, Equifax, and TransUnion. These 3 agencies receive information from creditors and lenders that reveal all credit transactions, such as credit cards, auto loans, and school loans. This information includes your balance, if you are still paying on the loan, if it is paid off, if the account is closed, and if you made any late payments.
FICO Scores Explained
- Assessing the borrower’s history of repaying past loans
- Calculating the amount of debt a borrower is carrying
- Looking at the length of a borrower’s credit history
A FICO score of:
Below 580 is considered poor
580-669 is considered fair
670-739 is considered good
740-799 is considered very good
800+ is considered excellent
Factors That Impact Your Credit Score
- Pay your bills on time, every time. If you’re having trouble paying a bill, contact the lender immediately. Don’t skip payments, even if you’re disputing a bill.
- Pay off your debts as quickly as you can.
- Keep your credit card balance well below the limit. A higher balance compared to your credit limit may impact your credit score.
- Apply for credit sparingly. Applying for multiple credit accounts within a short time period may impact your credit score.
- Check your credit reports regularly. Request a free copy of your credit report and check it to make sure your personal information is correct and there is no inaccurate or incomplete account information. You’re entitled to a free copy of your credit reports every 12 months from each of the three nationwide credit bureaus Remember: checking your own credit report or credit score won’t affect your credit scores.
A Lending Hand for Financing Home Mortgages
Spire Financial (A Division of AmeriFirst Financial Inc.) brings lending expertise to you. All of our loan officers offer personalized communication for every client, guiding them through the process. We can show you ways to maximize your finances and unlock future opportunities. Spire Financial keeps you in control of refinancing, debt consolidation, and home equity. Together, we can achieve your financial goals.