Much can be said about the topic of credit score. The most important thing that people have a hard time figuring out is how it impacts their finances. Every person that holds a job has a credit rating. It is a number that is calculated based on a few parameters. All of these parameters play an important role in determining whether or not you can quality for a mortgage.
Although the credit score impacts all kinds of financial decisions, we will mostly focus on the mortgage. So, if you’re interested in how your credit rating affects your ability to finance your mortgage, make sure to read to the end.
What Is A Good Credit Score?
First off, we have to establish what a good credit score rating actually is. No doubt you’ve seen the three-digit numbers but you probably have no idea what they represent.
Truthfully speaking, you’d want this number to be as high as possible. Luckily, we can clearly define what category you fall in based on that number. A poor credit score is that that has a rating of 579 or lower. A fair score is that of 580 to 669, while a good grade is that of 670 to 739. The last two grades are very good and exceptional, and these are the grades that you want to be in. A very good grade is from 750 to 799 while an exceptional is from 800 and upwards. These are calculated based on the FICO model, and this model is highly used throughout the world and the United States. The bigger your credit rating, the more trustworthy the lenders see you as. Since the bank is the financial institution you’d want to take a mortgage from, sticking in a very good and exceptional grade will give you the biggest chances of getting a mortgage.
With all that said, lenders have different specifications on what borrowers must have to be legible for a mortgage. And they also have different specifications for the rates and payments.
A Good Credit Score Dictates Rates
It’s safe to say that most lenders give mortgages even to those with poor credit ratings. When this is the case, then you have to look at the fine print as lenders will want to minimize risk.
The bottom line is that borrowers with a poor rating will generally fail to qualify or qualify for the least affordable rates. The difference between a few points can be dozens if not hundreds of dollars over a 30-year period. If you have a good credit score, then you will most likely qualify for the most affordable rates. This is because lenders don’t see you as a huge risk, meaning they will get a return on their investment.
Getting a Mortgage With A Poor Credit Score
Like we mentioned earlier, it is very possible to get a mortgage even if your credit rating is tanking. Although you will be met with very severe interest rates and unfavorable terms, it is still very possible.
Seeing as there is more than one lender out there, we decided to give you a brief overview of your options.
Conventional loans are exactly what they sound like. They are some of the most convenient means of getting a mortgage loan because they accept very low scores.
It is estimated that conventional loan lenders will accept a credit score as low as 620. Don’t dwell on it too long as you will most likely have to meet other requirements.
When it comes to having a poor credit rating, there isn’t a financial institution more likely to give you a mortgage loan than the FHA. The FHA is the Federal Housing Administration and they give loans to borrowers with a minimum credit score of 500. However, there are a few things to note there. Borrowers with a score of 500 to 579 can get a loan, but the down payment rate is 10%. If you manage to bring yourself a few points up, 580 or higher, then the down payment drops to 3.5%.
The USDA will give our mortgage loans to families living in rural areas. And they have a loan program that accepts low to moderate financial rating borrowers. The USDA, however, will not accept a credit score below 640. This means that in order to qualify for these loans, the score must be north of 640. Seeing as these loans are specifically structured around rural Americans, it’s safe to say that the rates are generally favorable.
Veteran Service Personnel Loans
Veteran Service Personnel loans are specifically aimed at military personnel, with both active and veterans being eligible for such loans. Apart from that, the families of both can also apply.
Going over to their website, there isn’t a minimum credit rating requirement that borrowers have to meet. However, most experts suggest that the VA accepts credit scores above 620 and higher.
How to Boost Your Credit Score?
Before actually going and applying for a mortgage, it would be wise to take a look at these next methods on how to boost your credit score rating. Here are a few ways to do it.
Pay Off Existing Loan and Debt
Since your credit score is affected by how much you’re in debt and how many loans you’re currently paying off, it would be a no-brainer move to actually pay off existing debt and loans.
Pay Your Bills On Time
Again, this is another great way to improve your score. It is estimated that upwards of 35% of your credit rating is affected by how much you pay your bills on time. Making sure that you’re not behind any bills is a good way to improve the score.
Don’t Take New, Larger Loans
The more loans you take, the bigger the chances you’ll go in debt. This not only damages your FICO rating, but it puts a huge strain on your finances.
Don’t Close Accounts
And the last tip we’ll give you is to keep your accounts open as opposed to closing them. Doing the opposite might sound like a smart thing to do, but it actually drops your score.