A credit score is a three-digit number that measure your likelihood of repaying your loan on time. Credit score range between 300 (very poor) to 900 (excellent). A good credit score give you access to better deals on financial products like mortgage, credit cards and insurance premiums. If you have poor credit score, you may be denied credit, and/or may have to pay a higher interest rate. Higher interest rates and other associated cost related to bad credit scores can add up over the years.
A credit report is a record of a borrower’s credit history, including active loans, payment history, credit limit and how much they will owe on each of their loan. Your credit activity, which is found on your credit report, impact your credit score.
How Credit Scores Work
Your credit score is developed using credit data that is grouped into five categories.
- Payment History
- Credit Utilization
- Credit History
- Credit Mix
- New Credit
These scores depend on the credit score formula from the credit reference bureau like Equifax and TransUnion.
How to Improve Credit Scores
- Pay bills on time
- Use your credit card regularly but try not to exceed 30% of your credit limit
- Pay credit card balances in full and avoid to carry balances over your card limit
- Keep your old credit accounts open unless you have a good reason for closing your account
- Don’t submit too many credit inquiries within a short period of time
- Monitor your credit score and report any errors and signs of fraud
Can Your Credit Score Affect Your Mortgage Rate?
Mortgage lenders use your credit scores to determine how likely you are going to default on your mortgage payments. They may deem you too be of high risk if you have bad credit score. Your credit score also determine the interest rate at which your mortgage is approved. Better credit score will result in a lower monthly mortgage amount, whereas poor credit score will result in a higher monthly mortgage amount. You should be monitoring your credit report/score to ensure appropriate actions are taken to maintain and also to improve your credit health.
Reach out to us if you have any question on your credit score and how you can improve to get the best mortgage rate.