It is really surprising that someone’s life can be severely affected by 3 numbers. Here’s a small crash course on what they are and what consequences they can bring.
You sit down to look at your credit report for the first time. If your scores are above 720, congratulations! You have excellent credit; stop worrying. If you’re scores are not above 700, no problem—let’s improve it. Take solace in the fact that the national average score is around 676 according to the Gallup Organization. If you’re scores are below 400, 500, or 600, there’s definitely room for improvement and only one way to go—up!
If the numbers I’ve mentioned don’t make any sense to you or you have no idea what they mean, don’t worry—I’ll explain. Credit scores range from 350 to 850. All three of the credit bureaus—Transunion, Experian, and Equifax—offer FICO credit scores using a complex mathematical formula developed by Fair, Isaac and Company, but they each give the scores a different name: At Equifax, the FICO is known as the Beacon credit score; at TransUnion, it’s called Empirica; and at Experian, it’s called the Experian/Fair, Isaac Risk Model.
If you’re credit scores are above 720 you will be able to get the best interest rates available as you have excellent credit. Tiered pricing is the increment in the interest rate of your home loan as your credit scores drop. The more of a risk the lender takes on you, the higher your interest rate will be. In addition, all moneylenders have their own break points between tiers. What this means is that one investor may increase the interest rate if a score drops below 700, while other moneylender will not give a higher rate until the score falls below 690.
In aggregation, you should do everything in your power to maintain good credit scores, and be sure to shop around and do your homework when looking for a home loan because all moneylender are not created equal. I think you’ve already gleaned the moral of the article but just in case you haven’t, here it is: Good credit scores save lots and lots of money, and be sure to choose a lender wisely to get the best rate for your scores.