You’ve probably seen countless ads and television commercials marketing services that provide free access to your credit score. You may be wondering how this score could possibly be so important. It is, after all, just a number, right?
Your credit score is indeed a number, but it’s a very important number that reflects your credit standing. And credit standing is vitally important if you’re making a major purchase like a car. It’s even more important when you buy a new home.
What is “credit?”
If you have borrowed money and paid it back over time for anything from a personal loan to a car loan to credit cards, you have credit. Your credit rating is a reflection of how diligently you have paid back that money. If you’ve never missed a payment and you’ve always paid your bills on time, your credit should be in good shape. If you have a poor record of paying your bills in a timely manner, your credit will reflect that, In short, your credit score will be lower than that of a more diligent borrower.
What can affect my credit standing?
In addition to loan payments, any bills in your name that you fail to pay on time – utilities, rent, medical or any other one-time or monthly payments – will also have a detrimental impact on your credit rating. As a borrower, when you’re late with payments or miss them entirely, you aren’t viewed as a reliable risk. This lack of reliability translates into a lower credit score.
Other factors that affect your credit score include the length of your credit history, the amount of debt you hold through credit cards and other loans, and how often you have applied for additional credit. Too many inquiries into your credit score can lower it, so be careful about opening too many credit cards and hanging on to them; each time you apply for a loan or credit, the lending agency runs a check on your credit. So might a landlord when assessing whether you will be a reliable tenant.
How can I find out my credit score?
You are entitled to one free credit report annually. Credit is monitored by three major credit reporting agencies: TransUnion, Experian, and Equifax. Once a year, you should request a credit report listing your score with each agency in case there are major discrepancies among them. Verify that your credit is what you think it should be and that there are no questionable dings or black marks on your history. If you feel that your report contains any errors, set them straight.
What is a “good” credit score?
The three credit reporting agencies assign every borrower a number between 300 and 850. A score above 770 is considered very good. If your score is much lower, you might find it difficult to obtain a new loan – particularly a mortgage loan. Scores of less than 650 require attention. If your credit score is low, you should work on raising the number by diligently making payments. It may take some time to raise your score, but it’s critical that you do so if you want to obtain a mortgage loan with a favorable interest rate.
How can my credit standing affect my ability to qualify for a mortgage loan?
If you have poor credit standing, mortgage lenders will see you as a poor risk for financing. And with so many recent foreclosures and loan defaults, lenders are looking more carefully than ever at the state of each borrower’s credit. You will need good credit to obtain a home loan, and even small blemishes on your record can affect whether you qualify for a favorable interest rate that will save you big bucks over the life of the loan.
The bottom line is that you must keep careful track of your credit standing. By checking your report annually, you can be on the lookout for any fraudulent use of your credit. By paying all of your bills on time, you can ensure that your credit will be in good shape when it comes time to make that all-important purchase of a new home. Diligence is the name of the game. Your wise credit management could pave the way to the home of your dreams.
NMLS # 698459
Residential Mortgage Services, Inc.
Senior Mortgage Banker
Cell – 617-413-5038