Understanding FICO Credit Scores When Purchasing A Property
When buying a property, your credit rating is a major factor that significantly impacts the amount of money that you will pay for your home loan. You will be able to obtain a better mortgage rate if your credit score is higher, and most credit ratings are based on FICO scoring. If you are interested in purchasing a home in Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, and have questions about your credit and its impact on your purchase, Foundation Mortgage can help. Continue reading to learn more about understanding your FICO credit score when purchasing a property.
What Is Your FICO Credit Score?
FICO is credit scoring model that was created by the Fair Isaacs Corporation and is intended to help lenders evaluate the likelihood of a borrower paying back money from a loan. A lender will use your credit score to analyze credit risk and determine whether or not to lend money to a borrower. Your FICO credit score includes a number that ranges between 300 and 850, with a score of 650 or higher considered as a decent credit score. It is important to note that most conventional mortgages will require a credit score of 700 or higher, and the higher your credit score is, the lower your interest rates will be. FICO will obtain important information from your credit report and will assess many factors that determine a borrower’s credit worthiness, such as length of credit history, the current amount of debt that is held, your payment history and spending habits, and the different types of credit that you have used previously.
How Do Credit Scores Affect Mortgage Rates?
When you buy a property, your credit rating will impact the amount of money that you can borrow, what types of mortgages you will be able to apply for, the mortgage rate that you will need to pay, and the amount of private mortgage insurance (PMI) that you will be required to pay. Because mortgage lending is based on risk-based pricing, lenders raise the mortgage cost for each liability that is associated with a borrower’s credit profile. Subsequently, if you have a lower credit score, you will be required to pay more throughout the life of the home loan. Even a slight increase in credit could help save you a significant amount of money, so when you are ready to buy a home, you will want to take steps to raise your credit by ensuring you monitor your credit closely and review for any errors, keeping your accounts open, even if you have paid them off, and paying down any debts that you owe, starting with accounts with higher interest rates.
If you are interested in buying a home in Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, and want to better understand the impact of your credit score, contact Foundation Mortgage today for a consultation.