You must have heard the terms ‘credit score’, ‘credit history’, ‘bad credit’, ‘good credit’, etc., thrown around here and there.
While these phrases sound familiar, they are not really understood by the common man and can turn out to be quite confusing. You don’t encounter your credit score on a daily basis and the good or bad credit score doesn’t come to you on a graded paper like a school test. However, it is a fact that these things do exists in the virtual world. They may not come into play in your daily lives, but they can play a major role when you go out to get a loan, purchase a house or other such things. In fact, it is very important particularly when you move towards making increasingly independent purchases in your life.
Getting a control over your credit score is a good idea as it is going to affect you sooner or later. Therefore, it is best to have a thorough understanding of what these numbers actually mean.
What is Credit?
Let’s begin with finding out what credit actually is. Credit essentially is borrowed money that can be used to buy anything and everything from groceries to a new home or a car. It is an agreement that you will pay back the money to the lender at a later date. This payment usually includes an added fee. Simply put, credit is what you take help from when you don’t have enough cash to make payments for an outright purchase. You are, in fact, leveraging someone else’s money— the credit card company’s or the bank’s— to make a purchase.
Whether you want to rent an apartment, buy a car or a house, open a utility account or simply borrow money for anything, you are asking someone to trust you with making your due payments on time. However, it is impossible for a lender to call all your credit card issuers since you first got your credit card and ask them about how good you are with money. Instead, they look at your credit score.
If your entire financial life can be boiled down to one number, it will be your credit score. It is simply a three-digit number that represents your entire history of borrowing money and paying it back to the lender. You are considered more trustworthy by the creditors when you have a high credit score, and vice versa.
While it might not sound like a really great idea to reduce all your borrowing history to one arbitrary number, but it is taken by creditors very seriously. With a poor credit score, you should expect to pay really high interest rates on your loans and credit cards. Getting approved for these credit cards and loans with a poor credit score is another story altogether.
With a good credit score, you will be able to borrow money on low interest rates and will not have to worry about paying more or losing out as you are considered financially responsible.
Credit score is a three-digit number between 300 and 850. It is linked to your social security number and is determined by your credit activities. This credit score is referenced in all kinds of future purchases or credit requirements. While credit score affects all your future purchases, it is considered the most important when you are applying for mortgage loans, car or credit cards as it impacts the interest rates. Simply put, the lower your credit score, the higher the interest rate and vice versa.
What Does the Credit Score Represent?
Your credit score is a representation of your ability to pay back the loan amount. It is a risk that a lender takes when they lend you money. In simple words, it is a measure of your credit worthiness. And while in some cases a bad credit score may not keep you from getting something you applied for, it can actually affect the agreement you are entering into. From high interest rates to other such issues, you will have to bear with it all when you don’t have a good credit score.
Minimum Credit Score to Buy a Home
The minimum credit score that you need to buy a home is not set in stone. It changes often, especially when the economy is facing a recession. It also depends on where you are applying for the loan. Here is a list of the minimum credit scores that are needed for the approval of your mortgage applications from different lenders.
- FHA Loan – Credit score of 580+ (it is possible for people with a credit score of 500-579 to get a loan but the chances are minimal)
- VA Loan – Credit score of 620+ (some lenders might agree on 580+ credit score as well)
- USDA Loan – Credit score of 640+
- FHA 203K Loan – Credit score of 620+
- Conventional Loan - Credit score of 620+
Have a Bad Credit Score? We Can Help
While raising your credit score cannot be done overnight, it can be done in the long run if you keep working toward it through small steps. It is important to keep paying your debts and credit on time while also taking help from an experienced credit repair service who can help you out with your credit score.
If you have a bad credit score that is affecting all your credit card or other applications, you can opt for a credit repair company to help you repair your credit. It is very important to set realistic goals when it comes to your credit repair. Don’t choose a credit repair service that offers unrealistic expectations as it can lead to disappointments. Your Rocket Credit has an experienced team of professionals who can help you repair your credit and keep it realistic at the same time. Set goals for incremental increases in your credit score numbers until you reach your goal. Our experts will help you implement your plan the expert way.
Get in touch with us at 830-822-2436 to get started.