Why Credit Scores Matter
A key qualifying factor for Mortgage Lending is your credit score. The credit score is used as a key indicator of your ability to manage credit. The reason that credit scores are relied upon so heavily is that it is able to accurately predict whether or not the prospective borrower will be able to uphold their end of debt contract by continuing to make the required payments. And they are able to do that without bias or discrimination.
A credit score derived from a sophisticated and complex numerical calculation that looks at past credit history and payment patterns combined with public records (such as bankruptcy, tax liens, etc). The most commonly referred to formula for credit scoring is the FICO® score. That credit score not only determines your borrowing qualifications for Mortgage Loans, it is also used for credit cards, auto loans and even the cost of automobile insurance. So having a good credit score is pretty important.
Credit scores range from a low of around 400 to a high of around 850. The higher the credit score the more qualified a borrower you are. The average credit score in the US is just under 700 which is considered to be a decent score.
The picture to the right gives you an idea as to how important various aspects of your credit history affect the credit score. Payment history (if you pay on time) has the most impact followed closely by how much money you owe (how much in debt you are).
Credit is not the only thing that a Lender looks at when determining a loan decision. They also look at your income, how long you have been employed, the amount of assets you have and other factors. But credit is probably one of the most important. That is why you should know what is in your credit report and immediate request corrections if there are inaccuracies. You can go to www.annualcreditreport.com and obtain a free credit report.
If you would like more in-depth information on Credit and what you can do to improve your credit score and increase your borrowing power, request your free electronic guide here. We will be happy to provide this information to you.