April 18, 2022
Ever spoken to a mortgage lender and been asked what your credit score is?
Well, it’s not actually a score on a test… although it could mean that. Credit scores are numbers, in this case, they could be as low as 300 or as high as 900. What does this score say about you? Well, it basically talks about your “creditworthiness”, or how good you are at using your credit.
How do you know what your credit score is? It’s calculated using all the information they find in your credit report. This includes payment history, how much debt you have left and the length of your credit history.
Why do lenders need to know about your credit score?
When applying for a loan, your credit score is intended to help your lender or the bank you want to borrow from, to make the best decisions on whether or not to “take a risk” on lending you, their money. Since they want to know how well you are with credit payments, they will do so by looking if you make timely payments given a credit card or a personal loan.
To determine your “creditworthiness”, you’re categorized into different. Typically, credit scores from 660 to 724 are considered good; 725 to 759 are considered very good, and 760 and up are considered excellent. Credit scores that are higher mean you have demonstrated responsible credit activity in the past, which may make potential lenders and creditors more confident about your ability to repay a debt when assessing your request for credit.
How do lenders act on different credit scores?
Borrowers with credit scores of 660 and up are considered acceptable or lower-risk borrowers. Those with credit scores below 660 may be less likely to qualify for better loan terms. While those with lower scores who fall into the “poor” credit range (generally below 560) are more likely to have difficulty getting credit or qualifying for better loan terms.
What does it mean for you as a borrower?
Now that you know this, you probably know what it means now as you move forward with a mortgage application.
If you want to qualify for the best available mortgage rates, it is very important to have a good credit rating, and you’d have to keep track of your score to make sure you achieve that.
Here’s a breakdown to better understand your numbers. Always remember that the higher your credit score, the better rates you can qualify for.
- 741 or more: Excellent! This is where the best mortgage rates live.
- 713 to 740: You have a good score. You should receive a very good interest rate on your mortgage and have plenty of options.
- 660 to 712: This says your score is fair and you’ll be entering average credit score territory.
- 575 to 659: this is a below-average credit score. Consider working on improving your credit score before applying for a mortgage.
- 300 to 574: Your credit score is poor. A bad credit score can limit your ability to get a mortgage. You may have options available to you, but the interest rates you’ll qualify for won’t be cheap. If you don’t want to wait and really want to purchase a new home now, there are immediate steps you can try taking to get a mortgage with bad credit.
Can you still apply for a mortgage with a BAD credit score?
The good news is time is always at your side. If you’re willing to wait, you should take time to improve your credit score so that you qualify for better mortgage options.
Bad credit scores don’t always mean you get a mortgage, here are ways you can get a mortgage with bad credit.