What impact does my credit score have on my loan?

People are becoming increasingly dependent on credit cards when making purchases and paying for services. Good credit has also been indispensable when applying for a housing loan. Mortgage lenders look into your credit score to make sure that you won’t miss on your mortgage payments. In case you have bad credit, the lender might give you a higher cost of loan or deny your application because you are a high risk borrower.

Here is a short comparison in costs between a person with bad, good and excellent credit scores.

600+Problem Credit Score:

This score means that-

  • You are a moderately high risk customer
  • You have a damaged credit history
  • You cannot afford all or some of your monthly payments
  • You defaulted on your loans/bills
  • You faced some of those financial drawbacks

The average credit score is 660. If you have lower credit scores it also implies that you made some missteps in the past as a customer. You also have to pay high interest rates because of the risk that the lender takes in approving your loan. But, this is far higher than the bottom which is 300. You just need careful financial planning while you regain your creditors’ confidence.

700+Good Credit Score:

It implies that-

  • You have been a responsible debtor
  • You don’t default on your loans/bills
  • You kept your balances low
  • You missed few payments that’s why you have not reached the top score
  • You made some minor financial mistakes that prevented you from scoring high
  • Your credit score will improve if you consistently pay your loans on time
  • Your lenders will give you lower interest rates compared to those who scored below 700

800+/Excellent credit score:

If your score sits from 800 and above, you are an excellent investment.

Achieving this score means that-

  • You are a low risk customer
  • You will likely pay the loans on time
  • You will be eligible for larger loans
  • You can expect low interest rates for long-term and large loans
  • Lower down payment requirement for some lenders

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