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Why Your Credit Score MattersMost individuals who are considering a home purchase or a mortgage loan refinance are well aware of the importance of having a good credit score. If you're like most home buyers, you've probably heard that it's important to have the highest credit score you possibly can in order to get the best loan terms and the lowest mortgage rates while securing the most advantageous mortgage for yourself. This is definitely true. In fact, if you have a low credit score and you're considering buying a home, it is advisable in some cases to wait several months to a year to allow your credit to improve before you buy. But why is it important to have a good credit score? What do these numbers mean to lenders? How can you find out what your credit score is? How can you improve it? Though you may have heard of the importance of a high credit score, are you aware of the different possible scenarios that can result if your score is low or moderate? Read on to learn the answers to some of these questions. How can I find out what my credit score is? You can check your credit report for free once every twelve months regardless of what state you live in. You can get yours free through www.annualcreditreport.com. In some states, you can access a free copy of your credit report at any time. It's important to check your credit score on a somewhat regular basis, at least every few years. It's especially important to check it if you're considering purchasing a home, as the more you know before you go to your lender, the better. The last thing you want is for your lender to access your credit report and then deny your loan request on account of what the report shows, as this will make it more difficult to get a loan next time you try. What does a high credit score mean to a lender? To a lender, a high credit score means that you have successfully paid back loans that you have had in the past. It means that you are consistently capable of leveraging your debt to create additional value. In short, it means that you, as a person, are worth investing in. This is essentially what a lender is doing when you receive a loan. Your lender is turning over money to be managed by you, and your lender hopes that you will be able to create value for yourself and for the lender, through interest, by managing that money successfully. What does a low credit score mean to a lender? A low credit score means just the opposite. It means that you haven't created value through the use of debt in the past, and as a result, it is probably not safe for the lender to invest in you. How can I improve my credit score? Improving your credit score doesn't have to take very long. Most people who find themselves stuck with a low credit score believe that it will take years of grueling work to build it back to a reasonable level. This is often true, but it doesn't have to be. It's possible to get your credit score back on track in just a handful of months. Unfortunately, there is really only one good way to do it. You need to take on debt and then pay it off swiftly. You also need to pay off any other outstanding debts you owe and make all payments on time. Within three to six months of this positive activity, your credit report will begin to shine again. Why does all of this matter? This is the most important part. Having a good credit score is the difference between longstanding financial success and bankruptcy. A good credit score is sometimes makes all the difference between lifelong equity creation and foreclosure. If you have a good credit score when you purchase your home, you'll be able to qualify for a mortgage that is particularly favorable to you. Primarily, this means low interest rates. You'll end up paying less into your home than you would with a lower credit score, which will provide you with a greater opportunity to build wealth and a stronger financial foundation from which to advance. DO yourself a favor and build up your credit score before you attempt to purchase a home. |
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