Your Credit Score
When you apply for a loan, including a second mortgage home loan,
you’ll hear a lot of talk about your credit score. If your
credit score is good then you will more easily qualify for a loan
and you will qualify for the best rate and the best terms. If
you credit score is poor you may be turned down entirely for a
loan, or, if you are approved, you will be forced to pay a higher
interest rate or the total amount of the loan you qualify for
may be reduced.
You understand that having a good credit score is important,
but just what is your credit score and what are the things that
affect it?
Your credit score is a number that is supplied by one or more
of the three national credit bureaus which keep track of all spending
and borrowing by individuals in this country. A high credit score
from the three credit reporting agencies is considered good, and
a low score reflects badly and may prevent you from being approved
for a home loan or other types of loans.
There is no one thing that determines your credit score. Your
score is arrived at by weighing your entire credit history.
There are five primary categories of credit that the three bureaus
used in determining your credit score. The first category includes
such items as foreclosures, tax liens, late payments, bankruptcies
and delinquencies. The second category takes into account your
current debts and the ratio of your current debts to your current
available credit. The third category looks at how long you’ve
had a credit history at all. The fourth category looks at how
many new credit applications you’ve made recently, and the
last category weighs the kinds of debts you currently have on
your record, i.e., credit card debts, car loans, mortgages, etc.
Some of the things which are considered negatives on your report
and which lower your credit score are late payments and missed
payments. The fewer late payments you have, the better. Late payments
that are 60 or 90 days past-due reflect more badly than payments
which are 30-days overdue. However, when you are applying for
a mortgage, more recent late payments look worse, as they indicate
current problems paying your bills.
Another thing which can reduce your chances of getting the mortgage
loan you want is having too many credit cards with outstanding
balances. This is especially true if you are using more than 25
percent to 30 percent of the available credit on a large number
of cards.
Lenders like to see a long credit history so they can make more
accurate predictions about how you will handle your credit into
the future. If you are planning to apply for a first or second
mortgage you should not apply for any new credit cards or other
loans. New loans are considered a negative by mortgage lenders,
as they will be in competition with your new mortgage.
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