Posted: Thursday, 7th November 2013
You will have three different credit score numbers from three different bureaus. Your score tells the lender what they can expect from you if they loan you money. Will you pay them back on time? Do you tend to max out your credit? Are you likely to run out and apply for three more credit cards after they loan you money?
A credit score ranges between 330 and 850. The higher your score, the less the risk a lender has when loaning you money. They trust you more with their money. Different lenders require different scores for different mortgage loan programs. As a general rule, they will judge you accordingly:
750 +: Excellent Credit: Some lenders will roll out the red carpet for you and offer you extremely low rates.
720 – 749: Very good Credit: You will get very good loan programs and offers, pretty much anything you want.
680 – 719: Good credit: You will probably be eligible for prime financing and can get good deals.
620 – 679: Sub-prime: You may have trouble getting a loan. If you do, it will be more expensive. Work on improving your score before you get a mortgage.
619 and below: Poor credit: You most likely will not qualify for a mortgage loan. You need to focus on rebuilding your credit.
Note: This is the typical model for 2010. A few years ago, these classifications were very different. Lenders were much more lenient (some allowed people to buy a home with no money down with a score of 580). The median credit score in America is 723.
These numbers can seem very arbitrary. It can be frustrating if your score is 679 and you are considered subprime, whereas if you just had one more point, you’d have "good credit."
This line between sub-prime and good credit is the most crucial boundary for you in the home-purchasing process, if you need a mortgage loan. If you want to get a mortgage today in this real estate market, you will probably need a score of 680 or higher.
The good news is that it sometimes is possible to raise your score by a few points within a short period of time. If you’re trying to get a mortgage, you can work with your mortgage broker using a tool called rapid rescoring, which may allow you to improve your score dramatically.
Lenders all have their own guidelines for what they need in a credit score and report. The underwriters take these scores very seriously as it is their only measure of prediction on how you will handle their loan.
Ultimately, your credit score is your responsibility. Check your credit report regularly to make sure there are no errors or signs of identity theft. Make sure to pay your bills on time. It also doesn’t hurt to double check to make sure that your payment arrived. With basic precautions in place you can preserve your good credit and qualify for new loans.