In today’s world, credit is critical to financial stability. It affects your ability to take loans and it essentially works as a score that is based on your ability to pay back debts in a timely manner. Before you embark on a journey to get a high credit score, it is beneficial to first understand how it works and what you can do to affect your credit. When it comes to mortgage loans, having a good credit score can save you dividends on the interest rates from your loan, as a higher credit score means less risk to a mortgage lender in Frederick MD.
The Major Credit Bureaus
To begin, it is important to understand how reports are compiled and who complies them. The three main credit reporting agencies are Equifax, Experian, and TransUnion. They are responsible for compiling credit scores about individual borrowers and through their scoring models, they show consumer creditworthiness. These are private companies that are highly regulated by the Fair Credit Reporting Act. While there are several other credit bureaus, these three dominate the market. They use the Fair Isaac Corporation (FICO) and VantageScore models, however, each bureau has its own FICO models for different types of lending. When retrieving a credit score report, they may differ between the different bureaus due to their different scoring models and inconsistent data collection times.
How Reporting Works
The three major credit bureaus collect data on your credit activity from lenders that you have accounts with. They receive this information, compile it all together and then run it through the relevant scoring model to produce your credit score. Lenders provide these agencies with the financial information that they have gathered in lending you finances, for free. The agencies then sell the information back to lenders that are looking for insight into an individual’s creditworthiness. Let’s say, for example, a mortgage lender in Frederick MD collects all of your mortgage payments on time and in full for the entire duration of the mortgage. They then will provide the credit bureau with this information and, after it is run against all of the other factors, your credit score will rise as you make timely payments.
How Scores Work
Before understanding how credit scores work, it is important to know that the three major credit bureaus compile their data at different times of the month. This means that there may be an inaccurate score within the three depending on when you request them, For this reason, when collecting a credit score, it is encouraged that mortgage lenders in Frederick MD do so from all three major bureaus to gain a more accurate scope of what your true credit score is. Normally, lenders will only look at one but, with a large amount of money being lent in a mortgage, a more accurate depiction of the borrower’s credit is required. As previously mentioned, there are two primary scoring models used. The first is the FICO score, which is commonly used, and VantageScore, which was created as a collaboration between the big three reporting agencies. These scores are affected by your timely payment history, the length of your credit history, types of credit, and new credit. The more that you borrow, the bigger impact it will have on affecting your credit score. If you want to build credit, it does take time. Your credit score is a reflection of your ability to pay back a loan and lenders will want to see that you have a history of being a borrower that pays back their loans on time.
How These Factors Affect Your Ability to Get a Loan from a Mortgage Lender in Frederick MD
Lenders differ on the scale that they refer to when deciding your loan terms, but typically the FICO scoring model is used. The FICO scoring model is broken down into sections from 800-850 as being considered “excellent” and “poor” being below 580. Where your credit score fits on this scale determines what the lender is willing to offer you in regard to loan terms. If you have a low credit score, you are seen as a larger risk to the lender, based on your previous credit experiences. A high score shows the opposite and that you are a low risk to the lender. If your credit score is considerably low, a mortgage lender in Frederick MD may deny you a loan altogether.
Take Control of Your Credit and Loans With a Mortgage Lender in Frederick MD
Having a good credit score is pivotal to your ability to secure positive loan terms as it is the main point of reference used by lenders. The lower your credit score, the higher risk you pose to lenders, and the higher your credit score, the lower the risk you are to a lender. When it comes to taking out a mortgage, having better terms and lower interest rates can make a major impact on your overall expenditure during the duration of the loan. When searching for a mortgage lender in Frederick MD, look for one that will assist you in securing the best loan terms possible. At Federal Hill Mortgage, our team of experts will assist you in ensuring that you get the best deals available and help you financially secure your new home. Call or contact Federal Hill Mortgage today to get started!
