Credit History & Your Loan Rate

Credit History & Your Loan RateUnderstanding credit and how it affects you in financial situations is very important. Credit is one of the biggest determining factors in getting a loan of any kind. Lending institutions and banks that loan you money want to know that you are willing and able to pay them back. They call this risk. The less risk it is to them the better. The thing about credit is that you can have too little credit as well. These institutions want to know that you have the ability to have credit and manage it.

They evaluate how much you already owe, how much you have available that is unused, how current and timely you are in paying your debts and whether you have recently applied for and received new credit.

You will most likely be asked to explain recent late payments, new inquiries and / or public records on your credit report. There are many pieces to a credit report. You have revolving, installment and mortgage debts. They usually read R, L or M next to the specific debt. Revolving debt is a debt that can be different amounts each time such as a credit cards based on the amount of the balance each month. An installment debt is usually a fixed debt such as an auto loan or furniture loan which is always the same payment each month. Mortgage debts are little more complicated. They can be either fixed or adjustable payments according to the type of loan you received when purchasing or refinancing your home.

Revolving debt does not have as much weight on your score and loan risk as an installment or mortgage debt. Inquiries can affect your score if they are in excess or if they have been pulled over a 30 day span. Public records definitely have a lot of weight on your score. A public record can be a collection, a tax lien, or even a bankruptcy or foreclosure. Collections can usually be paid in full and the lender will not think too much about it. A tax lien weighs a bit more on the risky side, not only because it can affect your title if you are refinancing your home, but also they tend to be a higher amount than collections. These will need to be released or satisfied in full.

A bankruptcy all depends on when it was released or discharged. Most lenders want 7 years since a bankruptcy, but they have become a lot more lenient on that rule in the last couple years. Now it can be a little as 2 years out of bankruptcy. Foreclosures are not so easy to get around. They need to be at least 3 years out and some institutions still say 7 years. All of which usually needs to have re-established credit afterwards in order to look as though you are trying to turn things around.

How To Increase Your Credit ScoreLenders look at your credit overall, but they weigh a lot of their decision on your credit scores or fico scores as they refer to them in the business. You have 3 different credit bureaus that report your credit. They are Experian, Equifax and Trans Union. They all give you a score according to there standards which differ a little bit between bureaus. A good score is anything 720 and above, an average score can be 680 and above, if you are below a 620 it is considered sub-prime.

There are steps you can take to show you how to increase your credit score for the better over a short amount of time. The better your score the better rate a lender can give you or is willing to give you. Keep paying those bills on time and remember not all debt is bad debt. You can have good debt as well.

Related posts:

  1. 3 Ways to Revive Your Credit Score
    A credit score can’t be rebuilt overnight. If you’ve encountered tough times and have seen your credit score drop in recent years, the sad reality is it will take some...
  2. How Much Home Can You Afford?
    In determining your maximum mortgage amount, lenders use guidelines called debt to income ratios. This is simply the percentage of your gross monthly income (before taxes) that is used to...
  3. FRM Interest Rate Stable at less than 5%
    Out of the 10 major cities surveyed this month, 8 of the cities’ financial institutions have recently been offering fixed-rate mortgages at less than 5%. This is a substantial jump...
  4. Mortgage Rate Trends for May 11-18, 2010
    While national mortgage rates are generally falling, we are seeing a trend of mortgage rates remaining above 5 percent. According to Freddie Mac, the national average for a 30-year fixed...
  5. Avoiding Bankruptcy
    Bankruptcy Alternatives In recent years, more and more people have been using bankruptcy to eliminate unmanageable debts. One alternative is for the debtor to write to the creditor and explain...

Speak Your Mind