Credit Scores More Important Than Ever

At least they are if you want a home loan.  With the recent tightening of the credit markets, your credit score can not only determine if you get a loan, it can determine the rate, terms and fees of the loan you get.  Not long ago if you had a 620 credit score, you could get the best rate available for a mortgage.  Now, that score has raised 100 points to a 720. 

So what is considered “good” credit?  Credit scores generally range from 350 to 850, depending on the credit bureau.  On a grading scale, 720 to 850 is A plus credit.  680 to 720 is A credit.  620 to 680 is B credit.  580 to 620 is C credit.  520 to 580 is D credit and 520 and below gets you an F.  So, from the example above, a person with a 620 credit score, considered C plus to B minus credit, could get the best rate available.  Now a person has to have A plus credit to get that premium rate.

Why is this?  Simply speaking, lenders are scared.  Due to some irresponsible lending decisions in the past, many lenders are taking some serious losses on some loans they have made.  When lenders take big losses, they aren’t as willing to make new loans.  And the new loans they are willing to make will be to borrowers they are 100% sure will pay them back.

So it is more important than ever to pay attention to your credit score.  Having that A plus score instead of a B or C score might make the difference of getting a loan or getting denied.  And it will definitely make a difference on the interest rate and terms you get.  Higher credit scores can save you a lot of money in interest. 

So how do you improve your credit scores?  How credit scores are calculated is kind of tricky.  Someone with perfect pay history might still only be in the B or A credit category instead of A plus due to some other factors.  It is a good idea to review your credit with a mortgage professional 4 to 6 months before you are going to apply for a home loan.  Many times there are some suggestions we can make to take your credit score from a 680 to a 720 in only 30 to 60 days.  And if you have credit scores in C, D or F range, there are still things you can do to improve.  It might take longer but scores can come up.

So call us at the Avery Financial Group if you would like us to help you review your credit.  You will be glad you did.