When applying for a home mortgage loan, the higher the credit score the better. But in case you have a credit score of 595, odds are you’ve either had credit issues or don’t have much credit history. If it comes to getting a home using a 595 credit score, there’s a good chance lenders will examine you with a cautious eye and either provide you a loan with a high interest rate or turn down your application altogether.
What 595 Means
A score of 595 means you have credit issues or have experienced credit issues in the recent years, as stated by the Fair Isaac Corporation, which produces the FICO scores that many lending companies use to ascertain your credit worthiness. But it doesn’t mean that you will not get a home loan, based on Smartmoney.com. A potential lender could deny your application for financing, or it could determine which you need to pay higher fees in order to have the loan. A score of 620 is considered the bottom of this”good” category.
Impacting Interest Rates
A score of 590 may have a definite impact on the amount of interest you’ll pay on a home mortgage, if you are accepted. According to Fair Isaac, the very best interest rates go to those who have credit scores of at least 720, and also the difference between the high end and the lower end, which comprises a score of 590, is significant. Fair Isaac compared the interest rate for a $100,000, 30-year fixed mortgage and found the difference between rates of interest to get a score of 720 and a score of 580 was roughly 3%. Meaning if a score is at or close to 580, you will pay approximately $72,000 more in interest payments for this $100,000 loan than someone with a score of 720.
FHA Loans
Before 2010, a credit score of 595 qualified one for the best possible down payment plan for loans guaranteed by the Federal Housing Administration. That isn’t the case. Starting in 2010, the U.S. Department of Housing and Urban Development increased the minimum score to 620. That doesn’t mean that you can’t get a loan. What it means is your down payment will probably be greater than FHA’s best application, which requires only a 3.5 percent down payment.
Other Factors
Fico ratings get a lot of publicity, but it’s only 1 part of the formula lenders use to ascertain your credit worthiness for financing. That is why it’s hard to say absolutely whether you’ll find financing using a 595 credit score. Lenders use other factors, such as your credit history, your score ratio, your job background along with your salary. FICO states you might have a high credit score and be turned down if you don’t meet other requirements–as a lender might approve your application if you have a low score but score greater in other areas.
Improving Your Credit Score
FICO has a checklist of ways that you can improve a score of 590. The idea is to be both patient and show consistency in the manner in which that you pay your invoices. Make all bill payments in time, specifically debt which accounts to credit bureaus such as credit cards and fixed loan payments. Lower your debt load so your debt to revenue ratio drops to a more acceptable level. Do not use for credit you don’t need. If a score is the effect of a lack of a credit history, establish credit by getting a credit card, but don’t get too many. Opening too many accounts may decrease your score. If you’ve experienced a life-changing event such as bankruptcy, set new credit after your release and pay on time so that your payment history has been reported to credit bureaus.