How Does Your Credit Score Affect Your Mortgage Choices?
Do you know what your credit score is? Have you ever wondered how it's determined? Better yet, what does it mean? These are questions everyone should have the answers for. In today's world, credit is King, cash is the trusted advisor! In order to have good credit, we have to have good cash flow. This doesn't mean we have to have lots of cash, we just have to know how to live within our means. When we have too many credit cards to manage and we start living beyond our means, we start having negative effects on our credit.
A credit score is the credit bureau's determination of your likelihood of defaulting on your debts at somepoint in the future. The better your history, the less likely you'll default and the better your score. Scores range from 300 to 800+ with most people hitting 700, give or take. Bankruptcy and collection agency issues are things that really drag down your score and advice on those situations are better left to those experts. My purpose here is to give you a better understanding of the system.
So what makes up your credit score? Below you'll find the weight each component is given in reviewing your credit history and making a determination for your score:
Previous Payment History 35%
Current Level of Debt 30%
Length of Credit History 15%
Types of Credit Carried 10%
#/Frequency of Inquiries 10%
These are pretty self-explanitory I think. If you are regularly late with your payments, that will have a large impact on your score. Likewise if you carry a high balance on your credit cards. Lenders prefer to see you carrying balances less than 75% of your available credit. Regular balances near your credit limit indicates that you are living beyond your means and increases the likelihood of defaulting in the future. The longer you have carried and managed your debts, the better your score and the type of credit you carry is important too. Revolving credit, such as department store and bank credit cards show more favourably than loans from say furniture companies that offer no interest no payments deals. Lastly, if you've applied for a number of credit cards in a short period of time, a red flag will rise with the lenders whether you've received those cards or not. if you've been turned down for any, the effect is worse but even if you've received all the cards, the lenders will be wary since there will not be any history in place with those particular card companies.
So how does all this affect your mortgage choices? Well, the better your score, together with current employment factors and the property in question, the lower the risk to the lender and so they will offer you the better interest rate.
Check out the tools on my website, www.centum.ca/lisa_collett for additional information and feel free to contact me to discuss your particular situation. I look forward to hearing from you.
Posted by Lisa Collett
on May 19, 2011