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Bad credit can disrupt your life. That’s
why, in addition to paying your bills on time, it’s important to check
the accuracy of your credit reports several months before applying for a
mortgage or car loan. And these days, you also can find out your
credit scores - the numbers lenders use to decide how likely you are to
repay a loan. Why do you need to know your scores? Because the lower your scores, the higher risk you are to a lender and the less likely you are to get the best rates on loans. Checking your score with Equifax, Experion or Transunion (the 3 major credit reporting companies) before you apply for a loan can save you money if you catch a mistake and correct it. When you are buying a home, the difference between good scores and poor ones can translate into well over $100,000 over the life of a mortgage. Most lenders initially use the Experion score system known as FICO, developed by Fair, Isaac and Co. Several factors go into your score, including bankruptcies, how many years you’ve had credit and the number of new credit applications you’ve made. Most consumers’ FICO scores fall between 300 and 850. Sixty percent score above 700; 27% score between 600 and 699, and 12% score between 500 and 599. The way lenders view scores varies from one institution to the next. But generally speaking, this is a rough guide to how your score may be perceived by a mortgage lender: 700 and above - EXCELLENT - you will get the best rates 680-699 - GOOD - lenders will be favorable, but you should make moves to improve your score further. Expect to qualify for rates ½ to 1% above Excellent ratings. 620-679 - AVERAGE - the lower your score in this bracket, the more collateral lenders will require and the higher rates you may get. Expect to qualify for rates 1-2% higher than Excellent. Commercial lenders will not accept your loan request below 680. 580-619 - SUBPRIME - scores in this range are often referred to as “A- credit”. You will have to put more down and pay far higher rates than most borrowers. If you score 580, for example, and want to but a car, any loan you get will carry a high interest rate. If the average rate on a 5-year car loan is 8% at the time you apply, expect to get a car loan for 11-13%. BELOW 580 - Often referred to as “B/C-credit,” you can expect to only qualify for adjustable rate mortgages (ARMs). Consumers in this range will pay above 9% for mortgages and will need down payments of at least 10% to purchase homes. In this range it is still possible to get 100% through certain lenders. Please contact us for loan requirements. MOVES to make a mediocre
credit score or even a bad one better are not difficult. You can
take steps to improve any credit score. The 1st step is
to make sure that your credit history is accurate. Your scores are
only as good as the information reported by your creditors to the credit
bureaus. Each credit bureau may not have the same information.
The 2nd step is to use the information on your credit history
to improve your scores. Each credit bureau will list the top 4
reasons for why your credit score is where it is. You may find the
biggest reason your scores are low is that the outstanding balances on
your credit cards are too high compared to the total credit limits.
Any credit score will improve if you pay off balances and pay on time. |
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