Blog

Blog

Do you know your credit score? The answer to this question for many people is no, but if you are planning to make a big purchase, such as a home or a vehicle, in the near future, you need to know what your score is.

What Do Credit Scores Mean?

Your credit score is a number between 300 and 850 that tells potential lenders about your creditworthiness as a borrower; in other words, how likely it is that you will be able to pay back a loan. It can be a significant factor in determining whether or not you are even approved for a loan, and also determining what your interest rate will be. The algorithm that calculates your score takes into account:

  • Your history of payments on previous loans or credit accounts
  • How much you currently owe on all credit/loan accounts
  • How long your credit history goes back
  • How much new credit you have taken out recently
  • The types of credit that you use

Generally your payment history and the amounts owed are the factors that weigh most heavily on your score, accounting for about two-thirds of your total score for FICO credit calculations (the most commonly used). The other three do impact your score, though not as much overall.

The Impact on Your Mortgage

A mortgage is likely the biggest loan you will ever get, so having a good interest rate could save you tens of thousands of dollars over the course of a 30-year loan, and a higher credit score is the way to get that better interest rate. Even a drop of 50 points in your credit score from 750 to 700 could raise your interest rates by 1 percent or more. It might not sounds like that big of a difference, but that will increase your payment by about $120 a month on a $200,000 loan, and it will translate to over $42,500 in additional interest paid over the course of a 30-year loan.

Getting Your Loan

Your credit score also impacts your ability to get approved for a loan. Most lenders will not typically provide home mortgages for people with FICO scores below 620, and if you do manage to get approved, you will likely have an interest rate much higher than you would if your score were even 100 points higher.

Improving Your Credit Score

It’s best to check your credit score well before you are planning to purchase a home—that way you will have time to improve your score if needed, or correct any errors you find on your credit report that are bringing your score down. One free credit report is available each year from Equifax, Experian, and TransUnion, so download those and go through them carefully to inspect all accounts. If all the information is correct, start paying down your balances, make sure you’re making payments on time on all your accounts and loans (including vehicles, student loans, and revolving credit), don’t open any unnecessary new credit lines, and your score should improve over time.

October 7, 2015

How Your Credit Score Affects Your Mortgage Payment

Do you know your credit score? The answer to this question for many people is no, but if you are planning to make a big purchase, such as a home or a vehicle, in the near future, you need to know what your score is. What Do Credit Scores Mean? Read More
September 21, 2015

What are Adjusted Rate Mortgages or ARMs?

Are you planning on moving from an apartment to a house? Unless you have saved a lot of money, you will need a loan to finance the purchase. Buying a home is possible within two or three times of your yearly household income, but this does not mean you get Read More
September 16, 2015

4 Mortgage Terms Every Future Homeowner Should Know

For many first-time homebuyers, the process of navigating through a home loan can seem a lot like learning a foreign language. Before you dive in to that new mortgage, though, it’s important that you understand exactly what your lender and real estate agent are talking about when they use industry Read More
September 14, 2015

Understanding the Full Disclosure Clause & Its Implications

You may have read the “full disclosure” phrase in many of your business documents and transactions, but do you know what it really means? As a buyer, how does the concept of full disclosure affect your purchase? Our experts at Altius Mortgage Group weigh in on the topic in an Read More
September 10, 2015

It’s Not Crazy to Get a Big, Long Mortgage

Anything big and long outside mortgage is good, excellent even. But when it finally involves money, a big, long mortgage is taboo. After all, who would want to pay seemingly endless monthly amortizations? Nevertheless, don’t always throw away the chance to get a big, long mortgage. It might be the Read More