Since yesterday’s post focused on credit, I figured it was only appropriate to continue on that same theme today. Specifically, in regards to purchasing a home. A handful of commenters yesterday indicated that Girl Ninja and I should just ditch the plastic all together. Dave Ramsey says those keep who credit cards are “Worshiping the almighty FICO.”
Should GN and I swear off credit cards for life? I vote no. In fact, I vote HECK NO! Do I wish we lived in a world were credit scores weren’t so darn important? Heck yes I do! But the world I live in, has determined credit scores are a very important part of determining one’s financial solvency.
When it comes time to purchase a home, Girl Ninja and I plan to follow the path of 99.9% of Americans and take out a mortgage. If you plan on paying cash, this blog post likely wont apply to you. It’s my understanding that the primary things a lender takes in to consideration when you apply for a mortgage are; A) how much you make, B) how much other debt you have, and C) your credit history/score.
If you have no credit history, or do things that could damage your credit history (like closing your oldest credit card accounts) then your FICO score will suffer. The lower your FICO score, the less inclined the bank will be to loan you money. Or at the very least, they will charge you a higher interest rate, since they perceive low FICO scores as “riskier” loans. Love it or Hate it, that’s the way it is.
Some will argue (as one did in yesterday’s post) “If you are worried about a Mortgage in the future, there are lenders who look at a lot more than your credit history!!” It’s true. There ARE lenders that will manually underwrite a loan for you. They’ll look at more than just your credit score (things like investments, savings, disposable income, etc). Unfortunately, manual underwriting is no longer the standard.
I want to get the best possible mortgage terms possible when it comes to owning a home. This means, I want as many banks as possible competing for my business. The number of banks that manually underwrite loans is SIGNIFICANTLY fewer than those that don’t. If I ignore my credit score, then I am forced into exploring mortgage options with a very small niche of lenders. The chances of me getting a ridiculously low interest rate decrease as I no longer have 50 different companies competing for my business.
Did know what the difference is between a 4.75% and a 6% interest rate on a $200,000 mortgage over 30 years? The person that takes the 6% loan will pay $55,000 more in interest! I gotta do what’s best for mine and GN’s financial situation, and unfortunately in this messed up world, that means keeping our credit score as high as possible (without borrowing money) so we can get the lowest interest rate possible.
What say you readers? Do you care about your credit score? When you bought your home, was your credit score a BIG piece in determining the lenders’ rates? Does my acceptance of current financial practices mean I worship at the alter of the almighty FICO?
p.s. Who knows what movie my stick figure drawing quote is from? No cheating.