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Shopping for a Mortgage? Credit Score Information You Need to Know

Are you interested in taking out a mortgage loan?  Needless to say, credit matters.  All of the big three credit bureaus, Equifax, Experian and TransUnion collect data from lenders and creditors that you have previously worked with.  Any new lending institution interested in financing your mortgage loan will want to know how you have treated creditors in the past.  They will scrutinize every detail of your credit report for the mortgage.  Credit score is important and is usually represented by a FICO score, a system created by the Fair Isaac Corp that runs from 300 to 850.

Borrowers who can produce a FICO score in the 700 or 800 range can expect to get the best terms on their mortgage deal.  They will have lower interest rates and more loan types to choose from.  620 or lower is considered average and may concern many companies offering a mortgage.  Credit score is important because it is a number representative of all the borrower’s financial history.  This type of sub-prime category may still qualify for a mortgage, but the lending company will probably restrict the terms and increase the interest rate.  A FICO score of 500 is usually the minimum score that traditional lenders require.

It is possible to get a mortgage with credit score lower than 500.  However, expect the interest rate to be very high and the terms to be slightly inhuman.  The lending companies that work with these in-debt consumers often times resort to predatory lending practices, which have been outlawed by the government.  (Though it is still commonly practiced)  However, a mortgage and credit score are not the only factors to consider.  Some loans can be approved or denied based on other factors including employment history, residential history, down payment, large cash reserves and a low debt-to-income ratio.

It is important that you take steps to improve your mortgage credit rating as much as possible before the application process begins.  At the same time, don’t conclude that your credit is so bad or even average that you can’t qualify for a loan.  Balance is required here.  Pay off the most important debts and satisfy as many creditors as possible, clearing your credit report of any glaring misdeeds.  (Some creditors can be negotiated with)  Remember that all debt is cleared after seven years and that even people with less than perfect credit deserve to have a house—if they can pay for it. 

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