Credit Score and Mortgages
Getting a mortgage and having a good credit score go hand
in hand. The interest and amount of
your
monthly mortgage payment depend on many variables,
one being your credit score.
So naturally, it is extremely important that you have
a good understanding of all aspects of your credit score
before you decide to take out a mortgage.
The article, “Your Credit Score,” posted on
Bankrate.com, May 1, 2006 gives a good overview of the
many aspects of your credit score and how to understand
everything. There is also good advice on how to clean
up your credit score.
This is how
your
credit score and mortgage are related:
“Your
monthly principal and interest charges are determined
by the rate and the amount of the loan. And the rate and
loan amount, in turn, are affected by several factors.
The rate depends on your credit score, discount points
you pay, and whether the down payment is less than 20
percent. The loan amount depends on the size of the down
payment and the home's price.”
The primary concern of your credit history can be divided
into two aspects. One is your credit report and the other
is your credit score.
“Your credit report
details your payment history on all loans, bankruptcy
filings and other financial information. You credit score
uses your credit report to arrive at a numerical representation
of your overall creditworthiness.”
There are many factors that determine your credit score.
The author lists the factors used to determine your credit
score are past delinquency, length of credit, credit use
and max of credit.
The longer you have had your line of credit the better
and if you are maxed out or close to your credit limit,
companies will view you as risky. Also, they look at if
your have paid your bills on time or were perpetually
late, because those who have been late or not paid in
the past will probably be the same way in the future.
“The higher your credit score, the less
risky you appear to a lender. A good credit score will
help you
qualify
for a mortgage loan and obtain better terms.”
If your credit score is low, there are a variety of things
you can do to clean up your report, but you should always
check out your score before you go and
apply
for a loan.
“Why check your credit
report before your lender does? Because an estimated four
out of five credit reports contain some kind of misinformation
-- errors you'll want to clear up before approaching any
lender. Obtain copies of your credit report from all of
the big three credit reporting agencies -- Equifax, Experian
and TransUnion. Each probably will differ from the others
in small ways.”
The easiest way to get your credit back on track is to
start paying your bills on time and pay the monthly minimum.
Also, you should pay attention to any errors and fix them
and note any late payments.
If you are thinking about
buying
a home anytime in the near future, it is best to start
looking into your credit score as soon as possible.
It may take a long time to clear up any credit blemishes
you may have had in the past.
“Bankrate
and FICO offer a free way to approximate your credit score
via the ‘FICO Score Estimator.’”