What is a good credit score?
Having a good credit score can make your financial dealings
easier and save you money in lower interest rates for credit
cards, auto loans, home loans and other kinds of credit. In
this "risk-based" pricing era, paperwork requirements
have been reduced dramatically for people with good credit
score.
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A good credit score means:
- It's easy to buy a home or rent an apartment.
- You can get loans with good terms.
- It's easy to get credit cards.
- Your loan approval will be quick.
- You can save lots of money on interest payments.
- You'll have more buying power.
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The growth in use of credit scores has dramatically increased
the speed at which many credit decisions can be made. Especially
for consumers with relatively good credit, approvals for loans
can be given in a fraction of the time previously required,
without any manual review of the information.
While different creditors have different criteria for approving
credit, a score over 720 is generally considered by most lenders
to be good and is used as the cutoff for giving borrower their
best rates and terms .
Credit Score and Mortgage Loan Process
Overall, a score of 720 or above is considered a very good
credit score. However, there is no single "cutoff"
score used by all lenders, and there are many additional factors
besides your credit score that lenders use to determine whether
to give you credit and at what interest rate.
| Credit
Score |
Resulting
Mortgage |
| 720
and up |
People
with scores of 720 or higher will have a good chance of
obtaining quality loans at the best interest rates. These
loans may require less documentation and paperwork. |
| 680-720
|
The
average home buyer has credit scores in this range and
will usually pay market rates. |
| 620-680
|
Will
fall under standard rules, but has less flexibility in
choosing mortgage products (FHA vs. Conventional, etc.
|
| 580-620
|
Will
be reviewed with a critical eye. Will need compensating
factors to be approved. |
| Under
580 |
Typically requires substantial down payment and/or higher
interest rate. |
How a good credit score can save you money
Keeping a good credit score can help save you money. For
example, borrowers who can increase their scores from 600
to 640 can lower the average mortgage rate on a $150,000 loan
from 7.9% to 6.6%; jumping up to 700 can drop the rate to
5.8%, and getting a score above 720 can earn an average interest
rate of 5.6%. That's a difference of $235 per month--or more
than $84,600 in additional interest payments over the life
of a 30-year mortgage!
Low credit score means higher interest rates
On the contrary, If you have a low credit score, you will
be charged high interest rates for loans and credit cards.
You may also have to pay higher deposits and fees when you
sign up for everyday services such as cell phone and utilities.
If your score is under 600, it's time to improve your score
aggressively. Even a small difference in scores in the range
of "poor" credit score can have a punishing effect
on your wallet: a dramatic increase in lending rate.
How to improve your credit score
- Check you credit report and score.
- Review your credit score analysis report and find out
what are needed to improve your credit score.
- Pay your bills on time.
- Keep your balance under 50% of your credit limit.
- Close unused accounts if you have too many credit cards.
When closing accounts, it is a good idea to keep the cards
you have had the longest. These long-standing accounts look
good on a credit report.
- Stability counts. Living in the same house or working
on the same job for several years looks good on your report.
- Use your credit card regularly and pay it off each month.
- Pay off your balances; don’t just transfer them
to another card or loan.
- If you are having trouble paying bills, contact your creditors
or see a legitimate credit counselor. This will help you
manage your credit and improve your score over time.
For more information on increasing credit score, go to How
to Improve Your Credit Score page.
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