The importance of the individual underwriter's examination of credit has greatly diminished in recent years. This is due to computer underwriting and the credit score. Your credit score is a number determined by a complex mathematical formula. The Fair Isaac Corporation (FICO) invented the credit score and is the dominant company supplier of the formula. Your credit score is commonly referred to as your FICO score.
Not all lenders use FICO scores, and some do not use them for all the loans that they offer. However, the number of lenders using FICO scores is increasing. It will not be long before almost all lenders will rely on them to some degree in making decisions of approval, rates, and fees.
Lenders use your credit score both to decide whether to accept or reject a mortgage application and to set interest rates and fees. Acceptable scores range from 500 to 850. The interest rate difference can be substantial - over 3% - from a low score to a high score. On a $150,000 loan, for example, your monthly payment could be over $300 per month higher if you scored 500 rather than if you scored 850. The average score ranges between 620 and 650. Lenders advertise interest rates based on the lowest rate they offer.
This means that they are assuming that you are the ideal borrower. Do not assume that because a lender advertises a low rate, and also advertises that it will accept borrowers with bad credit, that the low rate applies to the borrower with bad credit.
Unfortunately, an exceptionally high credit score will not get you a rate lower than the bank's best rate. The score needed for the best rate is generally between 720 and 750, depending on the lender. Any score above that will not lower the rate further. However, a great credit score of 800 or above could minimize a problem, such as insufficient income, and still allow you to get a loan that someone in the same position with a lower credit score could not get.
A benefit of learning your credit score is that you can determine in advance the approximate interest rate you should pay for your loan. You can even take steps to improve your score - if you plan far enough in advance.
The first thing to do to improve your credit score is to get your score from the three major credit companies - Experian, TransUnion, and Equifax - as previously described. While you are not entitled to get your credit score for free each year, it will cost you less than $10 to get your credit score from each agency, and you can order it at the same time as you order your free annual credit reports. It is worth purchasing your credit score from all three agencies as they are often different, and you will not know which agency's score your potential mortgage company will use. Along with giving you your score, the agencies will give you advice on how to raise it. Most of the advice is common sense:
If you have a low score because you have little or no credit established, you may want to apply for a no-fee credit card or two. While people who pay cash for everything may be the most financially responsible, they are not improving their credit score by doing so. The credit companies want to know how you have handled credit in the past, not how you have avoided using it.
Our website is not responsible for the information contained by this article. Webworldarticles.com is a free articles resource thus practically any visitor can submit an article. However if you notice any copyrighted material, please contact us and we will remove the article(s) in discussion right away.
This article was sent to us by:
Landon H. Mills at
04282010
1. People in the USA are living on the edge and do not even realize it
All articles in this directory are property of their respective authors. Additionally, read our Privacy Policy
© 2010 WebWorldarticles.com - All Rights Reserved. Partners: Gunblade Saga