When you are in the market of shopping for a mortgage it is essential that you know your FICO credit score inside and out as this will determine credit worthiness and is the basis for the interest rate you will receive for a loan. However, just knowing your credit score is good, but understanding how your existing debt affects your credit score is even better. Over the course of this article, we are going to go over Loans That Affect Credit Worthiness.
The first thing you need to know is that debt comes in two varieties and that is secured and unsecured. For example, when you own a home, if you stop making payments on your home, the bank can take the home since it is collateral. This is an example of secured debt. On the other hand, when you have a credit card, more times than not there is no recourse for not paying on this debt as the credit issuer has nothing to take from you, thus being unsecured debt. The following are the various types of Loans That Affect Credit Worthiness.
Student loans are a type of unsecured debt, but an actually benefit your credit score in the fact that most student loans need to be paid on for many years which will demonstrate good payment history when paid on time. Yes, student loans may be able to positively affect your credit score, however, if you are saddled with large student loans, you might be in trouble since they are calculated into your debt to income ratio.
Payday loans are loans that are typically not found on your credit history, but if by chance you default on one or have late payments, you can be certain that these negative marks will show up to your credit history. Don’t think that just because they don’t appear when they are taken out that they can’t affect you negatively in the end.
Auto loans, as described in the opening are an example of a secured debt because the lender can take back or repossess your vehicle if you fall behind on payments. In a lot of cases auto loans can increase your credit score because you are diversifying your credit portfolio. Since auto loans can be harder to obtain the mortgages, just by simply having auto loans can be favorable in the eyes of the lender.
Mortgages are the prime example for a secured debt because in most cases, the lender has collateral that can be worth thousands or even millions of dollars. Making payments on your mortgage will positively affect your credit score, but if you fall behind or are late, you can be certain your credit score is going to drop.
As you can see there are many Loans That Affect Credit Worthiness and knowing how to navigate these loans can help you go a long way towards your financial future. If you make the right decisions and treat your loans properly, you will be good to go. Hopefully you now know Loans That Affect Credit Worthiness and what they mean to you!