Your Credit Determines Your Interest Rate

Paying your bills on time does not automatically give you good credit. Creditors expect you to repay your debt on time and to exercise good judgment in using your credit.

Have you ever wondered why some lenders say ‘no’ and others say ‘yes’??

A lender’s decision to give you a loan is based upon the following:

  • your credit worthiness determined by your credit score
  • your ability to repay your loan
  • your job security
  • property value
  • money available for the transaction

Credit scores are widely used in the financial industry. This three digit number is the result of a mathematical algorithm. The credit score, or FICO score, was created by the Fair Isaac Corporation to help the banking industry to determine credit worthiness based on a set of numbers that can go as high as 850. That being the highest credit score attainable at this time.

By comparing your credit history and payment behavior to thousands of other consumers, credit scores will generally fall in the range of 500 to 850. Scores under 500 are usually the result of foreclosure, bankruptcy, bad payment history or lack of credit.

The lenders who say ‘no’ may have limited loan programs available to them and therefore cannot offer financing to borrowers whose credit scores are below 640.

The lenders who say ‘yes’ have numerous investors available to work with them and therefore can say ‘yes’ to credit scores that dip into the 400’s. There is a price to pay for these types of loans. Because the applicant is more of a risk as the result of a low credit score, the loan product will carry a higher interest rate. Some products may also have prepayment penalties that will cost you a predetermined amount of money to refinance out of.

Beware of lenders who brag they say ‘yes’ when others say ‘no’. It could cost you lots of money!