How Does Credit Impact Your Ability to Get a Loan?

If you have questions about how your credit score impacts your ability to get a loan, Terry Whitesell and I have answers.

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Are you curious how your credit affects your ability to get a loan? Today Terry Whitesell and I will answer some common questions we get from borrowers like you.

1. If I don’t have credit, how do I get it? It’s better to have no credit than to have bad credit. If you have no credit, it doesn’t mean you’re disqualified from a loan; it means lenders have to look at other factors. They’ll ask for alternative forms of credit like your cell phone bill, your power bill, your cable bill, and your rent, so make sure you pay those things on time. They’ll also check the 12-month histories on those.

The way to start building credit from there is to use your credit card responsibly and wisely and make your payments on time. Also, keep your balances low—lenders want to see about a 25% balance-to-limit ratio on your credit cards to keep your score moving in the right direction.

Lower credit will result in a higher monthly mortgage payment.

2. How do I get a loan if I have good credit and my spouse doesn’t? On a loan, lenders will look at both borrowers’ credit scores and, unfortunately, take the lower of the two scores. They’ll then rank your scores from high to low (each borrower hopefully has three scores) and use the middle score for each borrower. They’ll end up using whichever score is lower. If you have a spouse or a partner who is lower, you’ll want to do some things to build their credit score up.

3. How does your credit score affect your mortgage? There are different programs for different credit scores. Government loans like FHA and USDA will allow lower credit scores. For a conventional loan, the minimum score is 620. If you have a lower credit score than that, you’ll have a higher rate and a higher monthly mortgage insurance payment.

If you would like to know more about the world of lending, you can reach Terry by phone at (704) 267-4086 or email him at terryw@fairwayinc.com.

If you have any other questions or topics you’d like to see covered in a future video, feel free to reply to this email. I’d be happy to help you!