How Credit Rating Affects Your Mortgage Rate
Of all of the factors that go into determining the rate you will be asked to pay for your mortgage
, perhaps none is more far-reaching than your credit rate. Like other types of loans, mortgage loans are based on risk. And one of the primary instruments a mortgage lender uses to assess risk is the personal credit score.
While credit can have an impact on everything from loan rates and terms to car insurance fees to whether or not an employer choose you for a job, sadly many individuals remain largely in the dark when it comes to their scores and how to improve them. These guidelines will help consumers understand the importance of their credit score and credit history in qualifying for the best interest rates and loan terms when applying for a first or second mortgage or home equity loan.
First, some background. Your credit profile is comprised of two primary components: your credit report and your credit score. Your credit report is a listing of all of the active accounts you currently have with lenders, including personal loans, auto loans, home loans and other loans, as well as store and credit card accounts. In addition, your credit report also contains information about inactive accounts that have been active within the last seven years. Even an account that you closed six years ago can still be reflected on your current credit report.
In addition to listing the accounts and the specific lenders associated with those accounts, your credit report lists your current balance, your monthly payment, and your payment history, including any late payments. If an account has been closed, your report will indicate whether or not it was closed by the consumer or the lender. Credit reports also list chargeoffs, which occur when a lender essentially writes off a loan amount as a bad risk, and which typically occurs with smaller balances that are left unpaid over a prolonged period of time.
Your credit report also contains information about any court judgments that may have been made against you as the result of a loan default. And it contains an entry for any credit card or other loan you may have applied for, whether you were approved or not.
In essence, your credit report is a detailed listing of every credit activity you have encountered or initiated within the past seven years.
Your credit score is a numerical value that is assigned to you based on the information on your credit report. Those with good credit histories reflected in their credit report will have higher scores than individuals with late payments or chargeoffs. Even a single late payment can have a significant impact on your credit score. Your credit score may also be referred to as your FICO score, for the Fair Isaac Corporation, the entity that determines credit scores that are used by lenders.
Most individuals who have a basic understanding of credit scores understand that their credit score will decline if they are late with a payment or if they have a judgment or default on an account. But even applying for too many cards can make you appear like more of a financial risk, causing your score to decrease. For this reason, opening a credit card just for the frequent flier miles or other perks, even if you never use the account, can have a negative impact on your rating. Closing accounts can also cause your rate to go down in many cases.
Credit scores also take into account the length of your credit history. For instance, your rate will be more likely to go up or remain stable if you have a long credit history, with credit accounts that are in good standing and that are several years old. A credit account in good standing that is only a year old will not have nearly as much impact on your score. However, an account that is not in good standing, regardless of how old it is, usually will have an equally bad effect on your score.
Mortgage lenders use the credit score, as well as the credit report, to determine your risk that is, how likely you are to make late payments or even default on a mortgage loan. Even a long job history can be overshadowed by a poor credit rating or report, resulting in much higher interest rates on mortgages and other loans, or even causing you to be turned down for loans.
For these reasons, keeping an eye on your credit report is essential. Before applying for a mortgage, it is a good idea to get a copy of your credit report you are entitled to a free copy of your report each year, from each of the three major credit bureaus and check it for errors. If you find an error, there are simple dispute processes you can use to see that those errors are fixed.
by: mor123
Cash Until Payday: Instant Funds For Unexpected Urgencies How To Take Advantage Of Low Mortgage Rates Urgent Cash Loans: Enough Cash To Support In A Quick Manner Cheap Loan- Articles Related To Cheap Loan Cash Loans: Reliable Way To Pour Hefty Cash Payday Advance Without Credit Check- Quick Financial Assistance In A Short Time Span Commercial Loans Free Assistive Information Consolidation Loans Free Interrelated Info Easy Remortgage Uk: Grab A New Loan Deal On Affordable Interest Price Most Required No Fax No Teletrack Payday Loans For Short Fiscal Expenses Construction Loans Free Interesting Guide Short Term Payday Loans: A Short Term Help Funds Until Your Next Payday: Entail Swift Monetary Help