Our society runs on credit. It takes a mortgage lender to extend credit to finance that first or second home you want, without you having to exhaust your entire savings on the down payment.
Credit isn’t just handed over. We all have to prove our creditworthiness. Lenders base their loan decisions partly on our three-digit credit scores.
A credit score below 500 will not qualify for an FHA mortgage. To qualify for an FHA, a credit score between 500 and 580 normally requires a 10% down payment and a credit score above 580 requires a 3.5% down payment.
Conventional loans are best suited for those with a credit score of 680 and above and only require a 3% down payment.
Credit, or the lack thereof, contributes to the quality of your living. Lenders want to make sure they’re dealing with reliable and responsible people.
Even if you’re not looking for a loan to buy a house, your credit rating still has an impact on where you live.
Landlords consider rental agreements as a loan. They’re loaning you a place to live in exchange for a monthly rent payment.
If your credit is bad, you may get denied. Even if you do get approved, you may be charged a higher security deposit and higher rent than the other tenants for the same living conditions.
It takes credit to get utility services. Gas, light, cable and phone companies do credit checks before extending service. Oftentimes, a security deposit is required for those with bad credit with stipulations that if one payment is missed the money is forfeited at the end of the term.
As you see, credit scores provide a gauge for lenders to determine your ability to pay back debt. Your credit score tells the story of your current and possibly future financial habits.
Begin to establish good credit today by ordering copies of your credit reports from Annualcreditreport.com, and clean up any negative accounts by disputing inaccuracies with the credit bureaus before applying for a home loan or making an application to a rent.