Credit score: what is it and why is it important?

Two words you will often encounter when you’re processing a mortgage loan application are “credit score.” But what is it exactly, and how can it affect your overall experience in various real estate processes? Let’s find out.

The basics of a credit score

Your credit score (or credit rating) is essentially a figure that represents your entire credit history. One look at it and it can tell whether you are considered financially trustworthy or otherwise. In other words, it tells lenders and other institutions whether you pay your bills and debts on time.

The model created by the Fair Isaac Corporation (FICO) is the most commonly used system in the country, with scores ranging from 300 to 850. The higher your score, the better. Here is the average credit rating:

One important thing to remember about credit scores is that they can change depending on your spending habits and credit history. If you have an excellent rating now, it can sink to fair or even poor levels if you are not careful with your financial obligations. Meanwhile, those with bad to fair ratings can improve their credit score by paying off debt and settling payments on time.

The importance of your credit score

In many ways, your credit score is a symbol of your financial capability. Here are several ways it can affect your life.

1. You may or may not get approved for a mortgage loan.

   Lenders always take a look at one’s credit rating (among other things) to determine whether a person is qualified to take out a loan. Folks with credit ratings above 650 have higher chances of getting approved.

   Those with poor or subprime borrowers can still get loans but with certain conditions attached, whereas people with poor ratings can be outright rejected. This will negatively affect your buying or selling experience, as financing plays a huge role in both processes.

2. It also affects other types of credit.

   Your credit score also has an effect on other areas of life. You need a good rating if you want to get a credit card with a sizable credit limit. A good score can also mean a lower initial deposit for your new phone or car, in case you’re buying. It is also common for utility and service providers to take a look at one’s credit score to determine how much the down payment is.

3. Better score can mean a lower interest rate.

   Since people with good to excellent credit scores carry less risk than other people, there is a higher chance to get loans with lower interest rates. This is highly beneficial, as it means less money to pay during the loan’s entire life.

   Conversely, those with bad to poor credit scores might be subjected to higher interest rates. Some lenders also require these borrowers to repay their loans within a shorter period of time. In other cases, those with low ratings need to have a co-signer.

Do you want to learn more about your financing options?

Brad Wilkinson is the best to walk you through your choices. Talk to him today at 1.707.799.0455 / Brad(dotted)Wilkinson(at)cbnorcal(dotted)com or click here to get started.

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