How Credit Affects Your Detroit Home Loan
Before you go applying for a mortgage, be sure your credit is in top shape. You will not only increase your chance of being approved for a Detroit home loan, but your interest rate will be a lot lower, too. If you don’t know what your credit score tells potential lenders or how to raise it if it’s low, find out so you can get the best mortgage possible.
Relationship Between Credit Score and Detroit Home Loan Rates
When you apply for a mortgage, the lender examines your finances to determine if loaning you money is a good move on their part. Your credit score is one of the things they look at and it acts as your financial report card–the higher your score, the more responsible a borrower you appear to be. That means if your score is low, it’s unlikely you’ll be approved for a loan. At the very least, you’ll be offered a very high interest rate to compensate for the risk you present.
How a Credit Score is Calculated
There are a number of factors that go into calculating your credit score, some of which are more important than others:
Payment History (35%): Your payment history will tell a lender if you’ve paid all of your bills on time or if you’ve missed payments in the past. As the percentage of your score with the most weight, even one or two missed payments could really hurt your score.
Outstanding Debt (30%): The less you owe currently, the better. Lenders don’t want to extend more credit to someone who already has a lot to pay back.
Length of Credit (15%): The longer you’ve been a responsible borrower, the more trustworthy you’ll appear to a lender or creditor.
New Credit (10%): Lenders want to be sure you aren’t taking on too much debt, so they’ll examine whether you’ve acquired a lot of loans or lines of credit recently.
Types of Credit (10%): Not all debt is the same, so having a variety of loans and credit will show you can handle anything.
Increase Your Score for Better Mortgage Rates
So what if your credit score isn’t as good as you would like it to be? There are a number of strategies you can use to improve it, but generally, one of the best things you can do is to pay down any outstanding debt you have as soon as possible.
If you have a history of late or missing payments, you’ll need to consistently be on time for a while to make up for it. The same goes for your credit history–only time will repair that number. So for an immediate impact, reduce your outstanding debt and refrain from applying for any other new debt.
Repairing poor credit takes time, but it’s well worth the effort. There are a lot of home loans available in Detroit, but the truly competitive offers are reserved for borrowers with great credit.
