I just had an interesting discussion with Joey Fuller from Top Flight Financial about ways people can improve their credit scores in advance of applying for a loan. It’s easier than you might think. In some cases, you can jump 60 points in 30-45 days without doing a whole lot.
The take-away on this for me was–don’t be afraid to check your credit score just because you think it will be bad! You can probably fix it, unless you’ve been really naughty…
So why do we care about credit scores? Your credit score can affect your loan amount, interest rate, the required down payment, and whether you can be approved for a conventional mortgage.
Where does your credit report come from anyway? There are three major credit reporting agencies who do nothing but collect information about a person’s credit history: credit cards, auto loans, student loans, mortgages, court judgments, bankruptcies and so on. They maintain this credit history for years, but the last two years (24 months) is the time frame of most importance.
A perfect credit score is 850 and almost possible to achieve. A fabulous credit score is anything over 800 and these folks will get the best possible loan terms. (Oddly enough, they probably don’t even need credit!)
About the lowest credit score a bank or credit union can work with is 620. Mortgage brokers can work with 580 but they will have limited options.
So relax! Even a “low” credit score doesn’t necessarily prevent you from getting a loan. And if it does, you can work on fixing your credit and apply again in a few months. (P.S. You definitely don’t have to pay someone to fix your credit! Talk to a lender first—they are a great source of information and help.)