Everybody knows that credit scores have an integral role to play in whether or not you will be granted a mortgage. However, when you’re busy putting food on the table, your ability to keep track of each dollar spent or bill that needs paying can occasionally begin to waver.
Financial literacy isn’t a universal language and many people were unfortunately never taught the ins and outs of finances. In fact, many individuals understanding of finances doesn’t extend much farther than “debt is bad” and “your credit should be good.”
CCF Mortgage is committed to ensuring that clients leave our appointments with a strong grasp of their financial situation and what needs to be done in order for them to get approved for a mortgage. Therefore, extending this goal to the CCF blog seems like the natural next step.
So without further ado, an CCF Mortgage crash course: Credit Scores 101.
What is Credit?
According to CIBC:
“Credit is a deferred payment arrangement between a borrower and a lender that facilitates access to funds for repayment at a later date. Common types of credit include installment loans for large purchases such as a home or a car, as well revolving credit arrangements including credit cards and lines of credit.
Types of credit fall under two main categories: Secured, where the borrower pledges a specific asset (such as investments or a home) as collateral; and unsecured, where funds are borrowed without collateral. Given the reduced risk to the lender, secured forms of credit usually offer lower interest rates and higher credit limits.”
Furthermore, those who have credit are given a credit score, a number that indicates to financial institutions how well you have paid off your credit. This is why it is imperative to pay bills on time – so that a lender can see your high credit score and grant you a mortgage when the time comes.
How Credit is Calculated
Your credit is calculated by one of two credit-reporting agencies – Equifax or TransUnion. These agencies compile all of your financial information in order to produce your credit score.
Unfortunately, many people make the mistake of presuming that if they don’t pay their phone bill once or twice, it won’t affect their score all that much. This is a false belief. In fact, the information that makes up your credit score is collected from cell phone providers, Internet and cable providers, banks, and other agencies that provide credit.
While credit-reporting agencies have unique ways in which they calculate your score, the following factors have a great effect on your credit score:
- Your payment history
- The amount that you owe
- The amount of new credit requests that you have made
- The length of your credit history
- Types of credit
So what is a Good Credit Score?
Credit scores can range broadly from person to person. Here are the basic numbers that indicate whether or not your credit score reflects positively or negatively upon you:
- 300 to 579: Very poor
- 580 to 669: Fair
- 670 to 739: Good
- 740 to 799: Very good
- 800 to 850: Exceptional
At the end of the day it’s important to remember that even if your credit score exists on the lower end of the spectrum, your home buying dreams aren’t unrealistic. CCF Mortgage exists to assist those who are struggling with improving their credit score and getting secured for a mortgage. CCF wants you to have the white picket fence you always envisioned for yourself, let us help make your home buying dreams a reality and contact us today!