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How Does My Credit Score Impact My Ability to Secure a Loan?

Woman calculating finances

In a perfect world, we would have the cash on hand to make any purchase we might need. For most of us, though, that isn’t a practical reality. Fortunately, loans can help us purchase big-ticket items like cars or RVs. Personal loans can also be used to consolidate debt, make home renovations or repairs, cover educational expenses, and more. Before financial institutions give you a loan, they typically check your credit history and credit score.

Having a lower credit score can make it more challenging to secure a loan. If you are concerned about your credit, you can check your credit history and take steps to improve your credit score. Here is more information on credit scores, what they are, and how to improve them.

What Is a Good Credit Score?

Your credit score is a number that shows lenders your past credit history. Financial institutions typically check your credit score and credit history before approving you for a mortgage or other types of loans. Credit scores range from 300 to 850. A credit score of 700 or higher is generally considered to be a good credit score.

Experian, one of the three major credit bureaus, breaks down credit scores as follows:

800-850: Exceptional

740-799: Very good

670-739: Good

580-669: Fair

300-579: Very Poor

Each lender has its own criteria for deciding who it will extend credit to and what their interest rate will be. Generally, the higher your credit score, the better your chances are of securing a loan at the lowest possible interest rate.

What Components Are Assessed as Part of Your Credit Score?

What Components Are Assessed as Part of Your Credit Score?

Your credit score is based on several factors. These include:

  • Your payment history. Your payment history has a significant impact on your credit score. Late payments lower your credit score. Payments are tracked based on 30-day late payments, and it reports the number of 30, 60, 90, and 120-day late payments. The later your payment, the bigger an impact it has on your score. Accounts in collections and past bankruptcies also lower your credit score.
  • Your use of credit. The amount of credit you use compared to the amount of credit you have available also impacts your score. The more of your available credit that you use, the lower your credit score.
  • The age of your credit. The average age of your credit accounts also has an impact on your score. A longer, more established credit history typically results in a higher score.
  • Inquiries. When financial institutions pull your credit, they do a “hard inquiry.” Recent inquiries can lower your score.
  • Your credit mix. Having different types of credit, such as installment loans like a car loan and revolving credit, like credit cards can increase your score.

The first two items (your payment history and your use of credit) have the biggest impact on your credit score.

Who Determines Your Credit Score?

Your credit score is determined by using one of two models: FICO and VantageScore. FICO is the most popular option. Both of these options use information from your credit report to determine your credit score.

Your credit report is generated by three agencies: TransUnion, Experian, and Equifax. If you’re curious about what’s included in your credit report, or if you want to review it for possible errors, you are entitled to one free copy of your credit report each year from each agency. You can obtain that credit report by visiting annualcreditreport.com.

How Can You Improve Your Credit Score?

How Can You Improve Your Credit Score?

Since having a higher credit score can improve your chances of obtaining credit and help you get a lower interest rate, it’s important to do everything you can to boost your score. Some steps you can take include:

  • Paying your bills on time.
  • Bringing delinquent accounts current.
  • Keeping your balances low on credit cards (keeping your balance below 30% of your available credit is a good guideline).
  • Only apply for and obtain new credit when you need it.
  • Don’t close credit accounts you’re not using.
  • Check your credit report for errors and report any errors you find to the credit bureau in writing.

It takes time to improve your credit, but it can be done.

Your Lending Partner

At Arthur State Bank, we believe in a modern approach to traditional banking. We have several consumer loans with competitive rates. If you’re curious about what you qualify for and which loan is best for you, contact us today. Our loan officers are ready to answer any questions you may have and connect you with the right loan product for your financial situation.

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AnnualCreditReport.com is the only source for free credit reports authorized by the federal government. Every 12 months, you can get a free copy of your credit report from each agency.

Your credit report has your credit history for all of your credit accounts as well as any credit inquiries and public record court information such as collections. In addition, the report provides personally identifiable information such as your name, address, and employment.

Be sure to carefully review all three reports to identify any problem areas that you may need to clean up prior to applying for a mortgage. If there is any incorrect information, follow the reporting agency’s rules to correct it or add a notation to the report to explain the situation.

Your FICO Score is a score combines data from several areas include payment history, the amount owed, length of credit history, new accounts. Many lenders use this score as a guide. This score is not provided as part of the free annual credit report.

Learn more about how your credit score impacts your ability to secure a loan.

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Couple looking over finances

Primary considerations for setting your housing budget require an assessment of your income, debt and current savings for the down payment on the home. The following are generally recommended guidelines; however, you should meet with an Arthur State Bank lender to get personalized mortgage information.

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Couple meeting with lender

The pre-qualification/pre-approval letter is included with any offer you make on a house to inform the seller that you have met with a mortgage lender and you are prepared to make an offer. The letter states that based on certain assumptions, the bank is prepared to lend you up to a specified amount of money for a home mortgage.

When choosing a loan officer, we recommend going local to work with someone who understands your community’s real estate market. This blog on first-time home purchases includes questions to ask your lender that may be helpful when preparing for your meeting.

Helpful Resources:

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Realtor shaking hands with a client

When a house is sold, the seller typically pays real estate commission to both the listing agent and the selling agent. It is extremely beneficial for the buyer to use their own real estate agent. Loan officers can often recommend selling agents in the area; ask your officer about realtor referrals when discussing your loan.

A good realtor will know the local market and can help you find an ideal home based on your budget, location and desired features. During your search, understand that you will most likely need to compromise on some items, so it’s important to identify your critical needs versus your wants.

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Couple searching online for a home

Additionally, when you start with the house search and work backwards, homes can often go off the market while you’re completing steps 1-4. While browsing homes immediately can be tempting, we recommend following these steps in order so that, once you find your dream home, you’ll be well-positioned to take action immediately.

When you find the home you want and you think you are ready to put an offer on it, you will want to make sure you have all the information you need to make a solid offer.

  • Evaluate the neighborhood.
  • Drive by the house at different times of the day.
  • Examine how other houses in the neighborhood are maintained.
  • Consider any potential traffic or other disruptive noise.
  • Is there ample parking for you and visitors?
  • Read the details in any Homeowner Association agreements (HOA fees and rules).

Make sure to do a preliminary check of house details:

  • Check the water:
  • Does it have good pressure?
  • How long does it take to get the water hot?
  • Is it well water or city water?
  • Turn light switches on and off.
  • Open and close doors and windows to make sure they work properly.
  • Review previous utility bill expenses.
  • Consider the property tax bill.

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Family meeting with realtor at new house

When writing an offer contract, be sure to pay attention to all of the details.

Offer Price:

Your agent should do a market analysis that pulls data on recently sold comparable houses. The best comparisons will come from the same neighborhood.

If you are asking for the seller to pay some of the closing costs, remember that this cost plus the sales commission determines the net amount you are offering the seller for the house.

Work with your agent on your negotiation strategy. There are many things to consider, such as how badly you want this particular house, whether it is a buyer’s or seller’s market and an assessment of the seller’s motivation to get the property sold.

There isn’t one best strategy.

Be sure to document in writing everything you want included with the house, such as appliances, etc. Your agent should guide you through the contract step-by-step.

Contingencies:

  • Home inspection.
  • Mortgage.
  • Final walk through (24 hours prior to closing).

Proposed closing date. Typically, this is 30-45 days from an accepted offer.

A good-faith deposit is required for the offer. This is typically between 1-10% of the purchase price of the house. The deposit is kept in escrow until closing and the money is applied to the purchase price of the house at closing. If the house does not close due to one of the contingency clauses, the buyer receives their money back. However, if the buyer decides not to close on the property, the seller may get the deposit money.

Attach your pre-approval letter to the offer.

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Two people in professional meeting

The clock starts ticking for everything documented in the contract, including mortgage application, inspections and closing date.

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Woman advising other woman on mortgage application

You will need to decide which mortgage to select prior to the application.

Plan for the following potential fees:

  • Application fee (many banks and mortgage companies charge an application fee; however, there is not an application fee at Arthur State Bank).
  • Credit check.
  • Appraisal (may be paid at closing).
  • Loan origination fee (paid at closing).

Once you have approval for your loan, make sure you don’t change anything that will impact the status of your mortgage. Banks do a final check on credit and jobs just prior to closing, so now is not the time to change jobs or make another purchase on credit such as a car or furniture.

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Home inspector going over findings with home owner

Depending on the size of the house, an inspection can cost on average between $300 to $1000.

Many real estate contracts specify how problems uncovered in the inspection will be resolved, up to a certain dollar amount. Should necessary repairs exceed that amount, the buyer has the option to cancel the contract without penalty and receive their deposit money back. Another option is for the buyer and seller to renegotiate who will pay for additional repairs.

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Woman happily holding keys to her new home
  • Homeowner’s insurance is required by the lender prior to closing on the loan.
  • Turn on utilities in your name, effective the closing date.
  • Change your address with the U.S. Postal Service.
    • Make moving arrangements.

Three days prior to closing:

  • You should receive your final Closing Disclosure from the closing agency. The final Closing Disclosure shows a column for the seller and a column for the buyer. All closing charges and credits for both the seller and the buyer are documented in the closing statement.
  • Review the closing statement for accuracy prior to coming to closing.
  • The final amount in the buyer’s column shows you the amount of money you need to pay at closing.

The closing office will provide specific payment instructions. Closing funds have become recent targets for cybercriminals. If you are asked to use a wire transfer, call the office and ask to speak to someone you have been working with to double-check the instructions.

Closing day:

In South Carolina, the closing will usually take place at the attorney’s office. Everyone signing for the mortgage must be present to sign the closing paperwork. Make sure you bring the following:

  • Cashier’s check or proof of payment for wire transfer.
  • Driver’s license.
  • Checkbook, just in case there are any additional items that were not on the closing statement.

Be sure to understand this information:

  • How and when you will pay:
  • Your mortgage.
  • Your property taxes.
  • Your homeowner’s insurance.
  • Any HOA dues.
  • Who to call with any questions.

The best practice is to go through the homebuyer’s roadmap in this sequence. However, if you jumped ahead early in your journey, just circle back to address the steps you missed.

Arthur State Bank’s loan officers are closely tapped into local real estate markets and experts at helping clients get what they need on terms that work for them. We also offer mortgage specials for first-time homebuyers.

To start planning your journey to your dream home, try out our mortgage calculator. If you’re ready to talk to a loan officer, contact Arthur State Bank to request personalized mortgage information today. Don’t forget to ask about our first-time homebuyer offer.

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