Lenders look at a number of factors to decide whether potential borrowers qualify for their loan. Most look at your income, debt-to-income ratio, cash reserves and more importantly your credit score. Lenders weigh these factors differently, but almost all borrowers to consider your credit score.
Here is an overview of credit scores. The major rating agencies are Equifax, Experian and TransUnion. These agencies are responsible for calculating your credit score. You collect data regarding the history of debt and the payment of the claim by your lenders, who then goes in your credit report. Credit reports are what he sees on the lenders for a loan.
Fair Isaac Corporation (FICO) is the leading manufacturer of credit scores. Once the credit reports were arranged, FICO takes this information and calculates a score for you from 300 to 850. The higher the number, the more your credit score. There are dozens of alternatives, but FICO is the most popular.
If your credit score is high, typically between 760 and 850, lenders will offer lower interest rates and more loan options. With scores like these are considered to be “creditworthy”. However, if your score is below 620, you are considered a subprime borrower. This means higher interest rates and the very restricted loan choices. Subprime loans typically have a balloon payment penalties, payment penalties or both.
Scores from 500 to 520 are considered the lowest of the low. For most creditors is the minimum that will be subject to the approval of the loan. Anything less than this, the options are extremely limited and hard to find.
Some experts say that from your exact credit score, the interest rates and mortgage payments can be calculated. This is based on averages. Borrowers with scores above interest rates generally received about 760 4% on 30-year fixed-rate mortgages. Scores from 680 to 699 on average around 4.5% and so on.
What can you do?
Happen errors on credit reports. Poor errors on credit reports will hurt your score. Six months before applying for a loan, obtain a copy of your credit reports and FICO score. This is your opportunity to ensure that your credit report is completely accurate. Keep an eye our for information of other people’s credit and family members on the report. Sometimes information outsiders ‘ can sneak its way onto your relationship. Also look closely at the non-payments. If it can be shown that paid the Bill, your score will increase. You will need to contact the creditor if you find any of these errors.
Together to check the error report contains, should pay outstanding balances on credit cards as quickly as possible, especially those with higher interest rates. Do not close any credit account. This will not improve your score.