Do you know your credit score? It’s important that you do if you intend to apply for a home mortgage. If you want a lower interest rate, then it’s time to improve your credit score.
In the 1960s, Fair Isaac and Company started working on a system that lenders could use to evaluate the likelihood of receiving repayment on loans. Prior to that, it was really a matter of trusting an individual to be a man of his word. Fair Isaac sought to take human error out of the equation with a reliable system that could determine whether or not consumers were truly worthy of credit, and thus FICO was born.
Credit scoring has an enormous impact on a borrower’s ability to purchase a home. It can mean the difference between getting a good interest rate and the home of their dreams, and whether they will even be able to apply. For this reason, it is important for borrowers to understand the credit scoring process, and to know what their credit score is when they look to obtain mortgage financing.
According to the myFICO Web site (www.myfico.com), 90% of the largest banks use FICO scores for credit decisions. A 100-point difference in your FICO score can mean paying an additional $40,000 in interest payments on a 30-year loan of $300,000.
What the credit scoring model seeks to quantify is how likely the consumer is to pay off their debt without being more than 90 days late on a payment at any time in the future. Credit scores can range between a low score of 350 and a high of 850. (Anything 700 or above is considered “good credit.”) The higher the client’s score is, the less likely they are to default on their loan.
Credit score minimums have risen for mortgage applicants, even for those seeking FHA loans. It is imperative that applicants get their financial affairs in order and make sure they pay their bills on time. Improving your credit score will not only get you your house, but will also save you thousands of dollars over the life of the loan.
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