There comes a time in your life when accessing a loan is necessary, especially when you want to accomplish big projects that may require you to save for long. At that point, your credit score becomes of the essence to lenders when you approach them. The information is available in your credit report, and it highlights the probability of you falling behind on payments.Verify my mortgage eligibility (Oct 22nd, 2020)
Such creditors like banks and those who issue credit cards will check your credit score when reviewing your application. A good credit score makes it easier for you to qualify for loans and credit cards. In turn, that will help you finance large purchases with low-interest rates and get a premium rewards credit card with benefits. Here are some of the ways your credit score affects your loan.
1. Dictates The Interest Rates on Your Loans and Credit Cards
Before banks, lenders, and those who issue credit cards approve or deny your application, they will check your credit score. The interest rate on your loan or credit card will partially depend on your credit score once your application receives approval. A high score increases the probability of getting the necessary approval, and it can lower your interest rate.
Also, note that other factors like history with a particular creditor, your income, and outstanding debt, affect the interest rate. Some lenders use specific FICO credit scores, while others consider several scores. For instance, a lender can review your credit report and use a proprietary scoring model to develop a credit score drawing from the report.Verify my mortgage eligibility (Oct 22nd, 2020)
2. Determines Your Ability to Refinance Loans
You need to qualify for a new loan to refinance a loan, which will help you pay off your current debts using the proceeds. Refinancing will prove an ideal option when you want to save or lower your monthly payments on such loans like mortgages, student loans, and car loans. Consolidating and refinancing higher-rate credit card debt using a personal loan is also possible.
Since refinancing implies that you are applying for a new loan, your creditworthiness can affect the loan amounts and rates that lenders are willing to offer after reviewing your application. The better your credit score, the higher the likelihood of securing approval for a low-rate loan, which suggests that you will benefit when you refinance.
3. It Is Part of The Considerations When Buying A House
Becoming a homeowner is a dream come true for most individuals. Unfortunately, that may never become a reality if your credit score is low. The reason is that your credit score impacts your ability to qualify for a mortgage when you want to buy a house. You also need to understand that the free credit scores you receive online will not be part of the considerations that a mortgage lender will factor in when reviewing your application.Verify my mortgage eligibility (Oct 22nd, 2020)
Credit scores come in different versions, and most free score models are either FICO Score 8 or VantageScore 3.0. As much as that is the case, mortgage lenders have a habit of using older versions of the FICO Score. The best part is that the score ranges and scoring factors are mostly similar. As such, taking steps towards improving one of your credit scores allows you to improve all of your scores, thereby increasing the chances of securing a mortgage.
If you want to qualify for a mortgage with a 10% down payment, you need a credit score of less than 500 or at least 620 if you want one with a lower down payment. On the other hand, if you wish to access the best interest rates for a mortgage, you need a score of 760 or higher.
Working on your credit score is not an option if you know that you will need advance credit at some point. If you need more information on the impact of your credit score on your loan, contact us today!