Low Credit Rating Loan

Posted on January 25, 2012 by Admin
Low Credit Rating Loan

Low Credit Rating Loan

Every first-time home buyer wants a good credit score for a mortgage deal as it reduces the cost of borrowing money. It is normally necessary to perform some credit repair to fix credit ratings to get the mortgage credit score needed for the best deals. It states on the FICO website that: "If your FICO scores aren't high enough, it may be in your best interest to wait until your scores change." Although the exact formula FICO uses will always remain a mystery, having an understanding of how the system works is fundamental to achieving a credit score improvement more quickly.

Understanding How FICO Mortgage Credit Scores are Determined

  • Payment history (35%). Includes accounts that are paid as agreed, past due or delinquent. Scores will also factor-in how long it has been since payment was last received.
  • Amount owed (30%). The amount of debt relative to that person's total available credit limit. Also referred to as credit utilization.
  • Length of credit history (15%). How long the account has been active and whether there has been any recent activity on the account.
  • Types of credit (10%). A mixture of revolving (credit, store cards) and installment debt (loans).
  • New credit (10%). New accounts and recent credit searches.

How a Low Mortgage Credit Score Affects the Cost of Borrowing

Informa Research Services have produced statistical evidence to demonstrate how a credit score for a mortgage affects borrowing costs. As of July 28, 2010 a person with a 620 to 639 score will pay $1,480 (5.882%) on a $250,000 mortgage over 30 years. However, someone with an excellent credit score of 760 to 850 could get approval for the same mortgage loan for just $1,236 (4.293%).