How Your Credit Score Affects Your Borrowing Power
Equifax, Trans-Union and Experian are the three credit bureaus that score your credit
rating. They each monitor your payment history, outstanding debt, duration of your credit
history, types of credit used and new credit accounts.
Your combined credit score is one of the most important factors in determining whether a
lender will provide you with a mortgage loan because it helps the lender determine your
default risk. The size of your down payment and your debt-to-income ratio also are
primary factors that lenders take into serious consideration.
Credit scores tend to range between 500 and 800. The lower the credit score, the more
likely a borrower will default on a loan. If you’re at the lower end of this spectrum, you
may need to clean up your credit in order to qualify for a home loan, or you may have to
shop some of the more costly programs that factor your increased default risk.
Conversely, a favorable credit score may provide you with access to lower mortgage
interest rates and a generous array of loan options and terms.
It’s imperative that you get copies of your credit reports from all three credit bureaus as
soon as possible because the reports can contain errors that may take months to resolve.
There are plenty of online resources – including some of the major credit bureau Web
sites – that for a fee will provide a combined credit report.
You can get your credit report in shape by taking a number of precautions: fix errors,
avoid opening new accounts or making any large purchases, e.g., a new car, and keep
existing credit-card balances low. Moving debt around from one credit card to another
doesn’t fool anybody and it can adversely affect your credit score if some of the credit
cards are then maxed out.