How Important is My Credit Score?
Having good credit is essential because so many of the things that we buy are financed or purchased on credit. A network of credit reporting agencies keeps track of every person who buys on credit. Each time you apply for credit, the prospective lender will check your credit with at least one of these agencies to obtain your “credit score.” Your credit score is a numeric grade of your credit history.
Getting a mortgage loan these days without a credit score can be difficult. And obtaining a home mortgage in Massachusetts with a low credit score may result in paying higher interest rates on the loan.
The amount of interest you pay on a fixed rate fully amortizing loan is a function of three things: 1) the amount you borrow; 2) the term of the loan; and 3) the interest rate, which is expressed as a percentage. Lenders take in account many factors, including employment, salary, savings, and your debt-to-income ratio when they determine your mortgage rate. However, your credit score is a key indicator of the rate you will likely receive.
Why is My Mortgage Credit Score Different Than My Free “on-line” Score?
Many borrowers are confused when they discover that the credit score used by a mortgage lender is not the same as the consumer credit score they may have received from one of the free on-line credit reporting offers. It can be quite frustrating to learn that a lender is using a lower credit score than you feel you have earned!
The reason is that a mortgage lender uses unique scoring formulas that are weighted for mortgage-related factors. For most of us a mortgage loan will be the largest debt we ever incur, and lenders are very careful in assessing whether a borrower will be able to handle the financial responsibility of a mortgage.
The three major U.S. credit bureaus – Equifax, Experian and TransUnion — provide a “generic” three-digit credit score. When mortgage lenders conduct a “hard” credit report, they see three scores that take into account your personal history with prior and current home loans as well as payment histories for vehicle, installment, student, consumer loans and credit cards. These numbers can be higher or lower than the generic score.
So, while your consumer credit score can give you a good feel for where you might fall on the credit scale, it is not the final score on which you’ll be judged for a mortgage loan. You can use your generic score as a rough guide to calculate what you can afford.
Despite the discrepancies, it’s still important for prospective home buyers to scour their credit report and investigate their generic scores. This is a number that will govern not just your ability to qualify for a loan but the interest rate you’ll pay over the life of the mortgage.
A Mortgage Loan Designed for You!
Direct Finance Corp. has many flexible loan programs to help people with no credit history or lower credit scores to obtain a Massachusetts home loan. We also have loan programs with very competitive interest rates for those with good or excellent credit scores. Let us help you determine your credit score and search for the best mortgage program for your needs and financial situation.
Direct Finance Corp. is a mortgage broker that has provided thousands of mortgage loans. We find the key to a smooth and successful mortgage transaction is organization and communication. We help each of our clients to be well prepared, to gather the necessary documentation, and to understand the mortgage application process.
Let us help you find the right mortgage today. Call Direct Finance Corp. at 877-499-7283.