Too many people seem to see their credit score as an arbitrary number, unconnected to financial reality, too complicated to understand. Nothing could be further from the truth; and the fact is that this number, your credit score, influences many major financial events in your life, not least among them your mortgage and the interest rate on said mortgage. In this regard, a low credit score can actually result in higher payments and more mortgage debt.
Credit Score Factors
Credit scores are measured on a scale ranging from 300 to just below 900. In order to qualify for the best interest rates, lenders generally seek credit scores of 750 or higher; this is considered “excellent” credit. From there down to the mid-600s is a good-to-middling range of credit scores, while anything below around 625 starts to become very unfavorable for the potential credit seeker.
A number of factors combine to lower a credit score, including credit card debt, missed payments on bills, or high debt-to-credit ratios, among others. A bankruptcy or a previous foreclosure is sure to lower your score by a noticeable amount.
The trouble with having a poor credit rating is that it becomes difficult to secure a decent interest rate for a new loan or a mortgage, meaning that your payments are going to be higher on that loan than for someone with great credit. This can become a kind of slippery slope, where the higher interest rate results in the lender having difficulty making payments, accumulating mortgage debt and further hurting their credit score. The best advice is to be careful and always use good judgment before agreeing to take on any new debt.