What Your Credit Score Means
What Your Credit Score Means
By: Tanya Torres
Everyone knows that our credit is important for anything that we do and apply for. However, if you ask anyone what their credit score is then you will learn that not a lot of people know or want to know their credit score. When you are searching for a home then understanding your credit score and how it is crucial in buying a home can be really beneficial for you. Credit scores play a huge role in securing a mortgage loan along with being a major influence in what you qualify for. If you are considering buying a home then here is what you need to know about your credit score.
Credit scores can affect everything that you are applying for, especially when applying for mortgage loans for a home. Your credit score will help the mortgage company determine which loan options are right for you and your score. The first requirement to qualify for a loan is to have a certain credit score. Although the required credit score ranges for all mortgage companies since some require high credit scores of 640 and others will accept 500, both scores will impact the cost of your loan.
High Credit Score
Your credit score can impact the costs of your loan since it represents how much of a risk you are to the mortgage lenders. For example, a person with a high score of 640 will be seen as a responsible person who pays their bills on time. As a result, this will show the mortgage lender that this person will indeed pay their bills on time and repay the mortgage loan in a timely manner. This is where you want to be at when it comes to your credit score because you will be offered a low interest rate rather than face a high one.
Low Credit Score
If you have a low credit score with a bad history then you will be seen as a risky client to take on for the lender. If you do end up being qualified for a loan then you will most likely be facing a high interest rate. The higher interest rate is because the lender will be taking a chance with you and in order to protect themselves on the chance that you might not repay them back, they will have to increase the interest rate.
Credit Report and Score
When you look up your credit score, you might be wondering why you see a different score each time you see a report or apply for something new. Although it may seem peculiar, it really isn’t anything unusual since there are several versions of your credit score floating around due to the different places that issue it. For example, your credit score varies because it could be reflected by a bank, FICO, VantageScore, Credit Karma, etc.
In order for the lender to see an accurate score to learn what kind of risk you pose, they will use a tri-merge credit report or a residential mortgage credit report. By using a tri-merge credit report, the lender will be able to see all of your details and history from every credit bureau that you have used. If they use a residential mortgage credit report then they will be able to look at your rental history, public records and so on. Both of these reports will show the lender the credit details from either TransUnion, Equifax and Experian or all three places.
Improving Credit Score
If you are looking to buy a home in the near future then the best advice to give you is to improve your credit score before you start searching for a home. If you have an extremely low credit score with bad history then the chances of finding a home that is suitable for your needs are slim. A low credit score will not only limit you from finding a dream home, but it will just make it more difficult to get a good interest rate as mentioned above.
How to Boost Your Credit Score:
- Pay your bills on time.
- Do not open new accounts or loans.
- Check credit report and resolve any credit issues and accounts that are in collections.
- Pay down all of your existing debts and any remaining credit card balances.
- Check for any wrong information in your credit report.
- Dispute any inaccurate information with the credit bureau.