Massachusetts Real Estate- Merrimack Valley
Credit scores play a large role anytime you buy something over time, like a home or automobile. Not only does your credit score play a role in qualifying for a home mortgage it is also effects your interest rate. The lower your credit score the higher your interest rate and vice versa. I will cover some credit score basics in this article which will help in you in understanding your credit score.
I will discuss your score as it relates to getting a home mortgage. Realize there are different types of credit scores and how they are reported for different types of lines of credit. Immediately pull your credit report the minute you think you will buy a house. You can either do it yourself or have your mortgage officer pull your credit when getting a pre-approval letter.
As mentioned in the opening paragraph your credit score will affect your ability to obtain credit. It will also determine your interest rate for that line of credit. Whether it is a credit card, home loan, automobile loan…. it doesn’t matter. You are all probably aware of that.
But, did you know that your credit score can affect other things as well?
As you can see, your credit score can affect many areas of your life. Over a lifetime your credit score, if not optimal, can cost you 10’s if not 100’s of thousands of dollars. Understanding your credit score can help you make some decisions about how you utilize credit.
Credit scores are an expression of your creditworthiness based on a number created by a mathematical algorithm. Credit scores are used by banks, credit cards, stores, etc… to assess risk in loaning you money. Specifically, what is the likeliness
of the consumer having a serious default in the next 24 months.
The most common system used for mortgages is the FICO system, which stands for Fair Isaac Corporation. The Fair Isaac Corporation developed the system in the 1950s and is still the most widespread system used. When you are applying for a home mortgage we are talking about a credit score we are actually talking about your FICO score.
A typical mortgage credit report will be a FICO score from all three credit reporting agencies. The Three Credit agencies are Experian, Equifax and TransUnion. The credit scores will typically range from 300-850 with a 600-620 credit score being the minimum allowed for most types of credit.
Your credit is a complicated algorithm. Complicated enough to make it hard to manipulate. But there are 5 areas that go into making up your credit score and they are weighted depending on importance.
Here are some simple things people do every day to destroy their credit. If your credit profile is good don’t do anything to change it without serious consideration.
You can annually pull your credit report for free, once a year from each of the credit bureaus. Go to www.myannualcreditreport.com to get your free, annual credit report. This will not give you a credit or FICO score but will list what is being reported to the agencies.
Look for errors, it is not uncommon at all to have errors on your credit report. Many credit report errors can be quickly corrected. If you have some derogatory credit, research how you may go about rectifying it in the best way possible. By law most derogatory credit is removed after 7 years.
To actually get your FICO score you will probably have to pay for it from www.myfico.com. Realize there are different ways of reporting and when you go to get a mortgage your credit score may be different than what you have pulled in the past..
Your credit score has far reaching impact for you. Understanding your credit score can go a long way in maintaining your credit. Sometimes simple things can have a disastrous effects on your credit.
Whether you are in the market to buy a house, or will be buying a house sometime in the near future, now is the time to pay attention to your credit and then maintain it. Not only will it effect your ability to get a home mortgage it will effect your ability to get automobile loans, credit cards, etc…. Furthermore, credit scores will effect the interest rates you receive as well as insurance rates and possibly in being hired for a job.
No matter where you are at in life, learn about your credit score and keep making those payments on time. You might not need credit now but you never know when you may need it in the future.
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The Ultimate Guide to Understanding your Credit Score was written by Kevin Vitali of EXIT Group One Real Estate. Thinking of buying a home and want to make the most of your purchase? Call me at 978-360-0422.
Real Estate Services in the following areas: Northeast Massachusetts, Merrimack Valley, North Shore and Metrowest. Including the following communities and the surrounding area- Amesbury, Andover, Billerica, Burlington, Chelmsford, Dracut, Groveland, Haverhill, Lowell, Melrose, Merrimac, Methuen, Middleton, North Andover, North Reading, Reading, Stoneham Tewksbury, Tyngsborough, Wakefield, Wilmington, Westford
2 comments
Steve Millstein
January 3, 2017Great article Kevin! Not too many people truly understand just how important maintaining a good credit score is. It truly does effect your entire life.
Massachusetts Realtor
January 4, 2017Thanks Steve. Our credit profiles can have many far reaching effects in our lives.
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