The good, the bad and the no credit

Consumers sometimes take the “you either have it, or you don’t” approach to measuring their credit.

With a good credit score, they feel confident about their ability to finance a large purchase, such as real estate property. If the score is less than ideal, then it’s normal for a lot of people to get down on themselves and feel credit inadequate.

Credit ratings aren’t as cut and dry.

High credit is a combination of factors, such as a good record of on-time payments and a favorable credit utilization ratio. Yet, it doesn’t always pay off to aim high. Read on to learn more about what exactly is a good credit score and how a little credit score maneuvering can unleash your full financial potential.

Credit is about debt

People tend to look at credit as a measure of responsibility. That’s partially correct. But what a credit score is really about is how well a person can manage debt over time.

Lenders pay particular attention to a person’s debt level to determine credit approvals and the loan’s interest rate. Borrowers’ spending habits, savings and overall bank balance are not a part of the equation.

How no credit works

A person with no active credit probably hasn’t borrowed any money in several years; never opened an account and hasn’t recently applied for a credit card. This type of borrower is less likely to get loan approval since it’ll be more difficult for the lender to gauge credit risk.

An indeterminable credit score, however, isn’t the worst thing in the world and can be better than a poor credit score.

What is a bad score?

A score between 300-580.

A history of money mismanagement will lead to an unfavorable credit score. Poor habits such as routinely missing payments or letting missed payments escalate to collections will lead to a poor score, financially chaining consumers to a large ball of bad debt.

When consumers engage in risky credit behavior, their score may begin to drop. And when they apply for a new loan, creditors will hesitate and label them as too risky for approval. This could be a huge blow, especially if you’re thinking about buying a home.

People with less-than-perfect scores can get approved for a loan, but it can come at a high price. Some lenders will approve a loan, but they will attach it with a higher interest rate, which adds up the costs as the loan matures.

So, sometimes aiming for zero can be a whole lot better than having a mediocre credit score. A “zero” credit score means you’re free of debt and haven’t made any major credit missteps over the years. If you find yourself on the other side of zero, keep up with payments, chip away at balances and bring down the utilization rate so you can enjoy financial freedom one way or the other.

If you have any questions about how credit impacts loan eligibility, contact us today!

Selecting a mortgage that works for you

If you’re like most consumers, you won’t purchase your new home all in cash. You’ll need a little help from a lending institution. But how do you pick a loan product that will do the trick?

As one of the largest investments you’ll ever make, a lot weighs on your decision. The following mortgage information will provide a foundational understanding of the basics and various types of lending mechanisms you can choose from.

A mortgage has two parts: principal and interest. The principal portion of the loan represents the loan amount. Interest is the add-on, or the cost for borrowing the money. The borrower is on the hook for paying both.

The APR, or annual percentage rate, includes interest rate and other loan fees. APR plays in a role in mortgage pricing, as well.

Conventional mortgage

Fannie Mae and Freddie Mac, which you might have heard of, handle a lot of government-back conventional lending. You’re eligible for conventional lending if you have a solid credit score, good work history and at least 3 percent available for a down payment.

Conventional borrowers who put down 20 percent as a down payment can avoid paying private mortgage insurance, which is a monthly cost. Insurance may also be avoided with special low down payment programs.


For low- or moderate-income earners, an FHA makes homeownership accessible, especially if they are first-time homebuyers.

The Federal Housing Agency lets borrowers come in with just about 3.5 percent of the purchase price. The difference between an FHA and the above conventional option is borrowing requirements. FHA applicants will face more lenient borrowing terms, such as modest credit score requirements.

FHA, however, is not a direct lender. Borrowers therefore must pay an upfront and annual mortgage insurance premium that protects the lender in the event of a default.

Adjustable-rate mortgage

As interest rates creep up, some borrowers can opt for an adjustable-rate mortgage, which features a fixed rate for an initial period of time.

Once the period sunsets, the rate will fluctuate based on current market trends. There’s a risk of having to pay a high monthly bill once the rate resets. Some products, however, have a cap on how high the monthly mortgage can go.

Conforming and non-conforming

The federal government sets maximum loan limits based on location that bound conforming loans. The Federal Housing Finance Agency will make exceptions for high-cost areas.

A loan that does not remain within these bounds is a nonconforming loan, which cannot be serviced by Fannie Mae and Freddie Mac.

Non-conforming loans are known as jumbo loans because they exceed the federal lending cap. To qualify for a jumbo loan, borrowers must typically have a lot of cash on hand to absorb the large down payment requirement.

VA Loan

Like an FHA loan, a VA loan is designed to clear an easy path toward homeownership for the nation’s service members, past and present.

Borrowers do not need to make a down payment and they can enjoy 100 percent financing. As a bonus, they may also incur fewer closing costs, excellent interest rates and can skip the private mortgage insurance.

If you have any further questions about these loan programs, contact us today!