If you're a homeowner, you have a great asset at your disposal—your home equity. But while you may have easily qualified for your original mortgage, you will have to prove your creditworthiness again if you want a 澳洲幸运5开奖号码历史查询:home equity loan. That means that your 澳洲幸运5开奖号码历史查询:credit score is one of the deciding factors between approval and de🃏nial. Lenders generally look for a credit score of at least 680 before🤡 approving a home equity loan.

What Is a Home Equity Loan?

As the name implies, a home equity loan is secured by the equity you have accumulated in your home. With every payment you make on your mortgage, you build equity, which is the difference between the amount you owe and the home's value. If your home appreciates in value, that adds to your equity, too. Home equity loans are often called second mortgages.

When you apply for a home equity loan, the lender will evalu✃🍌ate your creditworthiness based on several factors, including:

• Employment history
• Income
• Credit score
• Low 澳洲幸运5开奖号码历史查询:debt-to-income (DTI) ratio
• Proof of homeowners insurance

What Is a Credit Score?

While each of those factors is important, your credit score is perhaps the 澳洲幸运5开奖号码历史查询:easiest for lenders to quantify. Most lenders use your 澳洲幸运5开奖号码历史查询:FICO score and pull your credit report from at least one of the three major 澳洲幸运5开奖号码历史查询:reporting agencies: Equifax, Experian, or TransUnion.

Your cওredit score is calculated by considering five things🎶:

1. Your payment history: 35%
2. The amount you owe across all accounts: 30%
3. Length of your credit history: 15%
4. Credit mixes, such as retail accounts, auto loans, mortgages, and credit cards: 10%
5. New credit: 10%

Lenders assume that if your credit score is high enough, you have a track record of paying on time and being responsible with your money.

What Credit Score Do You Need?

Credit scores are typ๊ically sorted int🐼o five levels:

• 300-579: Poor
• 580-669: Fair
• 670-739: Good
• 740-799: Very good
• 800-850: Excellent

Most mortgage lenders look for a credit score in at least the good range to approve a home equity loan, with a target of 680. However, the higher your credit score, the lower the interest rate you may be eligible for. So, being diligent with y𝔉our financial life can pay dividends when you're interested in borrowing.

If your credit score is below 680, all is not lost. Some lenders will examine your creditworthiness more intensely, analyzing other factors, such as your 澳洲幸运5开奖号码历史查询:debt-to-income ratio. If your score is very low, you can take steps to try to increase it before applying for a home equity loan.

How To Raise Your Credit Score

The first step to raising your credit score is to look at your 澳洲幸运5开奖号码历史查询:credit reports to determine what is bringing it down. You can access your credit reports for free from each of the three credit reporting agencies once a year through the official website AnnualCreditReport.com. Contact the reporting agency to investigate if you find fraudulent accounꩵts or debts that have b🎶een paid but not cleared.

Since much of your credit score is based on your payment history, paying your credit cards, auto loan, or first mortgage on time can help raise it. If you're behind on bills, catch up. Having all your current accounts in good standing shows lenders that you pay your bills on time and consistently.

Another way to increase your score is to pay down high-balance accounts. You decrease your 澳洲幸运5开奖号码历史查询:credit utilization ratio by paying them down, which shows you have more credit available and aren't, for example, maxed out on your credit cards. Another way to reduce your credit utilization is to🐻 request a credit line increase—the more space y♔ou put between your debt and your credit limit, the better. Ideal credit utilization is below 30%.

The Bottom Line

Good credit opens many doors, especially in the world of lending. If you're interested in leveraging your home equity for a cash loan, you'll need good credit. If you want a better interest rate on that loan, you'll need excellent credit. Before applying for a home equity loan, pull your credit reports and see where you stand.