Credit scores will have varied tiers to determine the reliability of the borrower, so what is a good credit score? A score that would be considered good is a 660 to a 699. A 700+ would be considered excellent and as long as you have a job, you would have no problem being approved for the highest LTV (loan to value of the purchase).
What if your credit score doesn’t fall within the “good” range?
Here is what you can expect:
- An average credit score of a 620-659, you will most often qualify you for the loan; however, there will be more conditions that you will have to meet such as a larger down payment as well as being charged a higher interest rate.
- With what is considered a poor credit score of 580-619, you will have a more difficult time obtaining financing from a conventional lender, but there are specialty lenders out there that would be willing to take the risk. These specialty lenders sometimes look at the borrower’s scenario more so than the credit score.
- Having a very poor credit score of 579 and below, almost any secured credit card company or financial will turn your application down.
What can you do to improve your credit score?
The first way to improve your credit score is to pay on time. This makes up 35% of your credit score. When you pay on time on any of the loans or debts that you have, then you are most likely improving the negative aspect of your credit ratings. Another aspect to improving credit score is to decrease the outstanding balances in your report.
Did you even know that when you apply for new loans and the number of inquiries conducted to the account will also affect the credit score? Well, it does. The more these lenders and institutions conduct research on your credit history, the more it will have a negative impact on your account. Try to reduce the amount of applications you have will definitely help a great deal in improving your credit.
Who else will make use of your credit score?
Credit scores are important to banks and lending institutions. There are other industries that will be able to make use of your credit score as well. Mobile phone companies, insurance companies, government agencies, utility companies, some employers, and others will also find the data contained in these reports to be very useful. These industries want to make use of the data so that they can determine the reliability of the person to pay for the premiums and the monthly bills for the services and products they offer.
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Credit score is important, but income and DTI is even more important in today’s retail mortgage lending environment. In the past, you can make next to nothing and still get a loan with a good rate due to programs like SIVA, SISA and NO DOC. This is probobaly one of the reasons why the real estate market crashed.
Now days, even if you have a 800 fico, but no income to justify the loan amount, you are not going to get a loan.
I couldn’t agree with you more Michael. Thanks for stopping by!
Great article! Now more than ever, it’s imperative to have a good credit score and keep your debt to earnings ratio as low as possible. Those with the best credit will weather the economy as it fluctuates.