Welcome to the topic "EXPLAINING CREDIT SCORES"
Buying a home can be a fascinating step in your life, but the most important thing for you is to know how your credit scores might affect the process of home purchasing in Colorado Investment properties. From the amount of money you are allowed to borrow to whether you can qualify for the best loan terms, the credit scores can impact the loan amounts, mortgage types, down payment, and private mortgage insurance.
What is a credit score?
A credit score is a number that lies between 300-850 and depicts the creditworthiness of the consumer. The higher your score, the better you can look to the potential lenders. A credit score is based on credit history, levels of depth, number of open accounts, repayment history, and various other factors. Usually, the lenders use the credit scores to evaluate the probability that an individual will repay the loans promptly.
The credit score model was created by Fair Isaac Corporation, also known as FICO, and the financial institutions apply it. While many other credit scoring systems exist, but FICO score is the most commonly used one. There are plenty of ways to improve an individual score, including repaying the loans on time and keeping the debt low.
How do credit scores work?
Your credit score can significantly affect financial life, and it plays a massive role in the lender's decision to offer credit. People that have below 640 credit score are generally considered to be subprime borrowers. The lending institutions charge a higher rate for the subprime borrowers in order to compensate for more risk.
Conversely, a credit score of 700 is considered acceptable and might lower the interest rate for the borrower. Scores of greater than 800 are regarded as excellent. A person's credit score may determine the size of the initial deposit required to rent an apartment. The average FICO score range is as follows:
Very Good: 740-799
What can be a good credit score for buying a house?
The majority of people ask what type of credit score could make you qualify for the best rates? As we know that FICO breaks its credit scores into five different ranges, and you don't need a flawless credit to get a mortgage. There are cases that the scores can be even in the 500's, but the Colorado Licensed realtors suggest the credit scores estimate the risk that you may not be able to repay the loan. Therefore, potential lenders will reward a higher score with lower interest rates and more choices.
Chris Hauber of Denver, Colorado, is a mortgage loan originator that suggests that the people who would like to buy wait until they have scores of at least 620. He says that higher is always better, and those who have a credit score of 740 or more will get the lowest interest rates.
How to strengthen your credit score to buy a house?
If your credit score won’t get you the best possible deals on a mortgage, then it would be sensible to keep renting for a while and take a little time to polish your credit profile.
Pay your bills on time
The most important factor is the payment history that can affect your credit score.
Keep your credit card balances low
Most experts recommend that you not be using more than 30% of any credit card limit because lower is better. How much of the available credit you use is known as credit utilization, and it is considered as the second most significant factor in your score.
Check your credit reports
It would help if you looked for score-lowering errors. If you can find something, then you should dispute it. You are entitled to at least one free credit report every 12 months.
Keep credit cards open
Closing your credit card reduces the amount of available credit that you have. This can send your credit utilization up and ding your score.
Look at your credit mix
If you only have credit cards or installment loans, you should be considering adding other types to demonstrate a better payment record across the diverse credit lines. If you want to build up a thin credit file, you must consider a secured credit card or a credit-builder loan after consulting with the best realtor team.
Your credit score may cost or save you money in your lifetime. Lower credit scores can potentially limit the amount of money you can borrow to buy a home in the Colorado real estate, which can lead to higher interest rates. Before you go with the home buying process, you should consult your real estate agent, check your credit reports and credit scores to get an idea of your credit, and review the information reported by the lenders and creditors.
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