Your credit score is determined by information gathered from credit reports from the three major credit bureaus: Equifax, TransUnion and Experian. These three bureaus collect information from all your lenders about any money you have borrowed, how you have paid them back and what money is still owed.
Any finance company or bank can access the reports from these agencies when you apply for a loan or credit with them. The information from these three reports is analyzed to come up with your FICO score. This number will be somewhere between 300 and 850. The higher your score is the better it is for you.
Your score will determine whether you can even qualify for a mortgage and if you do it will be the major factor in how much your interest rates are. A score of at least 500 is needed to be accepted for a mortgage. If your credit score is between 520 and 620 you will be considered a sub prime borrower and can expect to pay higher interest rates than if you have a higher score than that. When you have a credit score of 760 or higher you will considered low risk and can get a much better mortgage interest rate than others with lower rates. You will have the most options available to you and will have little trouble getting the mortgage you want, especially if you have a good down payment ready at the time.
Your credit score can make a huge difference in the amount of interest that you have to pay on your mortgage and with a higher credit score you can save thousands of dollars compared to someone with a lower credit score. The difference can mean much lower monthly payments and translate into hundreds of dollars each month. Someone with a high credit score can save more than $300 a month compared to someone with a credit score under 640 on a mortgage of $300 000. This can work out to an overall savings of more than $100 000 in the long term full repayment of the mortgage.
Many people have learned that it is wise to get all three credit reports and their credit score long before even considering applying for a mortgage. This way if their rating is too low to get a good rate, they hold off on applying for a mortgage and work diligently at repairing their credit reports so that they can get a higher credit score and apply for a mortgage once their rates would be lower.
Things that will lower your credit score include late payments, too much debt, missed or underpayments, amount of money owed and amount of credit available, how long you have been at your present job and your current income, employment history, the length of your credit history and the number of credit cards or loans issued. Many people will wait until they have been at their job for a longer period of time, have received a raise, have made steady payments and paid off their current debt and taken steps to improve the factors looked at. Then they will go to a mortgage lender after seeing that their credit score has improved and they know that they can get a better interest rate on their mortgage. This can save them tens of thousands of dollars over the life of the mortgage.
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