The way your credit score is calculated has an enormous effect on how much money you pay for a mortgage loan. Banks and other lending institutions use a variety of different formulas to arrive at the numbers that they need. The numbers will ultimately come down to the numbers you submit when you apply for a mortgage. Because it is so important, there are several things that people should be aware of. Here is a look at some of them.
How Your Credit Score Affects You When people think about how credit scores influence their chances of getting a mortgage, they often picture those who have higher numbers as having luck or being lucky in other ways. This is not true. The formulas used by banks to calculate credit scores based on the information contained in your credit reports. If you do not have very good credit scores, it is likely that you will not be able to qualify for a competitive interest rate on your mortgage.
How Your Credit Score Affects You Mortgage companies use a number of different factors when determining which mortgage rates to offer you. The first factor, they will consider is the percentage of available credit that you have. If you have too little available credit, you will find it more difficult to qualify for competitive interest rates. On the other hand, if you have a good credit score, you will be able to qualify for the same mortgage rates.
What Your Credit Report Says About You Whether you know it or not, the information on your credit report can affect your ability to qualify for mortgage rates. There are three main credit bureaus that report information on virtually every consumer. Equifax, Trans Union and Experian are responsible for collecting this data and publishing it for the viewing of mortgage lenders. They will all differ slightly in how the information is reported to the various mortgage companies.
Credit Scores and Applying jointly When you apply for a mortgage, the mortgage lender will ask for your FICO score. This is a calculation that takes into consideration several different factors in order to come up with an overall score. Some of these factors are your payment history, the amount of debt you owe, any outstanding loans and whether you pay your bills on time. All of this information affects what your credit scores are, and all of it will affect the mortgage rates you are being offered. If you are applying jointly with someone who has a lower credit score than you, the rates they are being offered may be higher than what you would otherwise be qualified for if you were applying independently.
Your Credit Report May Contain Errors or Notices A mortgage lender will look at each of the credit reports that you submit to them separately. If there is a discrepancy between two reports that could cause your interest rate to be higher or lower than what you qualified. The problem lies in how often these errors occur, and whether or not you notice any discrepancies before applying for the loan.
Credit Score and Pre-approved offers Another way how your credit score affects you when applying for a loan is if you receive pre-approved offers before you apply. These offers are usually offered to people with very low credit scores. Even if you do qualify for the offer, the interest rate can be higher than what you qualified because the company uses your low credit score to make their decision. Because these pre-approved offers come from financial institutions, the rates they offer may be hidden fees, additional fees, or both.
Lowering your credit score One of the reasons why people tend to get lower interest rates than they would otherwise be because of their credit scores. Lenders use these scores to determine the risk of lending money to you based on your past credit history. Lowering your scores means lowering the amount of risk the lender thinks he is taking by lending you money. This can be helpful in lowering your interest rates, especially if you don't have a lot of debt to start with.