Real Estate News with Terri Taydus, GRI, CNA

What Does Your Credit Score Mean and How Can it Affect You?

October 14th, 2011 8:40 AM by Taydus Taydus

Your credit score affects much more than you may think! Deciphering your credit score can be puzzling. Read on for a breakdown of what your credit score means and how it can affect you.

The good news is there are ways you can improve your credit score! A good mortgage lender can give you tips on how you can improve  your credit score, so talk to your lender if you would like more information. A word to the wise; in most cases bringing up your credit score does not happen overnight. It could take as long as 6 months to improve your rating. So if securing a home loan is in your future, but your credit score needs improvement, do not procrastinate! Start working on improving your score now to position yourself for the best rates on your next home loan!

720 and above: You have excellent credit and will likely be eligible to receive a lender's most favorable rates. Lenders will often allow you to borrow up to 80 percent of the value of your home, and may not require private mortgage insurance. You will likely be able to get a home equity loan or line of credit with an interest rate equal to the prime rate, or even below it. You can also look for a credit card that will reward you with a low interest rate -- while many cards charge 18 percent, you should be able to obtain a rate under 10 percent.

675 to 719: Once your credit score dips below 720, you may no longer be approved for the lender's best rate, but you should have little difficulty finding a good loan. On a 30-year fixed-rate mortgage, expect to pay up to half a percentage point more than someone in the top category. If your principal is $150,000, the difference between 6.5 and 7 percent works out to about $18,000 over the life of the loan (keep in mind that this makes very little difference in your monthly payment.)

620 to 674: With a below-average credit score, your options will be reduced, and you'll pay a premium on your loan -- perhaps as much as 2 percent
more than borrowers with excellent credit. You may need to provide more documentation than those with higher scores. But if you make your payments regularly and work to improve your credit score, you should be able to refinance at a better rate later on down the line, which can save you money over the life of the loan.

Below 620: A credit score under 620 puts you in the category of a "sub-prime" borrower. The good news, however, is that there are now more
lenders offering sub­ prime loans than ever before, with rates adjusted to reflect the added risk. If you are approved for a mortgage with a credit score this low, you'll likely pay about 3 percent more than someone with excellent credit. If you're looking for a home equity loan or line of credit, expect to pay double-digit interest rates. Of course, once again, if you make regular payments on the loan and get control of other areas of your financial life, you should gradually be able to improve your score and qualify to refinance at a lower rate.

Your credit score can also affect the rate you pay for car insurance. People with low credit scores are statistically more likely to make accident claims, and as a result, many insurance companies take this into account when
they set your premiums.

Poor credit may even hamper your job search. While a company interviewing you is not permitted to access your score, they are allowed to request
(with your written consent) a modified version of your credit report to see whether you have a history of meeting your financial responsibilities. Potential landlords may also access your credit report before you sign a lease.

We are a credit based society. Your credit score can either help you or hurt you. Take care of your credit, use it responsibly, and / or work to improve your credit score, and you will reap the benefits of a healthy credit rating!

Posted by Taydus Taydus on October 14th, 2011 8:40 AM


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