Many veterans have already taken advantage of the VA loan. With easier qualifications and more flexibility it has been the right choice for many to purchase and refinance their homes through this program. However, in most counties, the conforming loan limit with no money down is $417,000. What happens when your home costs more than this? There is a solution! The VA Jumbo loan.

A VA jumbo loan is any VA loan greater than $417,000. Qualifying veterans can apply to purchase or refinance their home for up to a value of $1,000,000 through this type of loan. The VA Jumbo mortgage just asks the veteran to make a down payment of 25% on any amount over the limit of $417,000. Basically the home is purchased for this down payment and the closing costs, which can be rolled into the loan and do not have to be paid out of pocket. Plus you get all the benefits of a VA loan!

For example, imagine you are a veteran and the home you intend to purchase is $650,000. In order to find out the down payment you would need, simply start by subtracting the conforming loan limit ($417,000) from the purchase price, which equals $233,000. Multiply this amount by 25%, which equals $58,250. This would be your down payment. This works out to about a 9% down payment. That’s less than the standard down payment on most homes. The VA program is hard to compare to a conventional loan when you look at it from this point of view.

VA Jumbo loans are only available to those that qualify for VA loans and their eligibility requirements.  It will allow you to choose a home that suits you and your family the best. Jumbo loans have all of the benefits of a VA loan, plus it allows you to obtain a larger loan amount if that is what you need. Definitely make sure you check out this amazing offer!

LowVARates has put a lot of time and energy as of late to solidify their place in the online universe as a leader in online videos about VA loans.  Statistics show that online video sites like YouTube are the future of the online search arena and this is a main reason why Google has purchased YouTube.  Think about it.  If you needed information on how to get a VA loan with no closing costs, would you rather read pages and pages of content or watch a video?

We have all sorts of VA Loan videos on our site to help prospective VA home buyers and existing VA loan holders alike.  In addition to the videos on our site we invite you to follow us on YouTube by clicking here.

Here  is a list of some of our Top Videos and we feel they will be of great worth as you try to become more educated in the field of VA home mortgage loans.

No Cost VA Loans

Insider Secrets to the VA Streamline

How to payoff debt with a VA Hybrid Streamline

Understanding the VA Hybrid

Why a VA Loan to Purchase a Home

Using their VA home loan benefits to buy or refinance your home is something more and more eligible military families and veterans are doing.  It is the goal of LowVARates to make using these VA home loan benefits a reality for all of those that are eligible.

Being in the mortgage industry for the past 8 years I have come to realize that showing appreciation to your clients is a must. If I were running my own company I would even make it mandatory for VA loan officers. If you think about the process of buying a home it would seem like the Broker holds all the cards, but in reality it’s the Solider or Veteran.

The Loan Officer works for them, not the other way around. At any time during the process of completing the application and closing of escrow, the client – if they want – can find someone else to work with. I don’t want to sound like VA loan officers have no value or bring nothing to the table, its just good to understand what my responsibility is – WHICH IS HELPING THE SOLDIER/VETERAN! Without them I cannot put food on the table, but they can still get a VA loan without me.

I hope that did not sound like a rant, I just want to get the point across of how important the Veteran is.

There are many ways that I can show appreciation for Veterans and Soldiers buying homes. Let me list some of what I have done:

1. Give them the service they deserve. When talking with them on the phone or in person be sure to thank them for their military service. Sometimes address them using their Rank – this shows respect. Be prompt in your timelines and expectations.

2. Offer the best rates. Be competitive in the marketplace. Veterans and Soldiers will know if you are giving them higher VA interest rates and higher fees. I’m not suggesting doing the loan for free, but don’t “stick it” to them either. Trying to back pedal after you’ve been “caught” offering a bad deal is not a fun situation to be in.

3. Communicate. This is key. The best clients I have are the ones where I talk with them about the process of buying a home. I always try to educate Veterans or Active Military. Before closing explain to them how the final settlement statement looks and if there are any changes regarding rates, fees etc. NEVER DO A BAIT AND SWITCH!

4. Give them something of value. This is not too much to ask. Something simple like a Home Depot gift card or a house warming gift. The most recent purchase I did was here locally in UT. There were some speed bumps along the way to say the least. At the closing table I brought in a gift basket full of over the counter medicine as a joke. I also had some dish towels for the wife. They did not expect this, but they were very grateful because it was going above and beyond the call of duty.

5. Follow up. After the dust settles and your clients have moved in or completed their refinance, call them and ask how they like their new home or lower monthly payments. Send them birthday cards or Holiday cards.

In order to be successful in this business, you must always show your Veteran/ Active military clients that you care and appreciate them. Before you know it they will be sending referrals to you and that’s when you know you have created a business partner for life.

Veteran Mortgage loans vary in form and length. The type of VA mortgage loan an individual selects will vary according to an individuals needs.

Here is a quick overview of some of the types of VA loans:

Fixed Rate- Fixed interest rate home mortgage loan offers a borrower to lock a certain interest rate for the life of their loan, unless the borrower chooses to refinance. The interest rate for the loan never changes no matter what is happening in the market. This gives a borrower a sense of comfort from a fluctuating market.

Advantages: Even if interest rates rise, you can keep your interest rate.

Disadvantage: If interest rates go down, your rate stays the same.

Term of Fixed Rate loans: Fixed VA mortgage rates are available for 40, 30, 25, 20, 15 and 10 years. Usually, the shorter the term of the loan the lower the interest rates. Longer term VA loans can be easier to get because a borrower does not need as much income. The most common fixed rate loan lengths are 30 and 15 year loans.

30 Year Loan: This is the most popular mortgage. Monthly payments are low since the life of the loan is long, but because of this their will be more interest over the life of the loan.

15 Year Loan: This loan life is shorter, resulting in a borrower owning their house quicker. A 15 year loan usually has a lower interest rate, but higher monthly payments.

Adjustable Rate (ARM) – Adjustable rate mortgages, VA Hybrid ARM, or Variable rate mortgages are loans where the interest rate adjusts based on indexes and or prime rates. With a variable rate the interest is tied into the lending institutions prime rate. Interest rates can vary from month to month. While the payment remains and only fluctuates slightly, the amount applied to the principle can change regularly. Typically lenders will set a cap for how high the interest can reach annually. Because of the flexibility, Adjustable Rate Mortgages often are less expensive than fixed rate mortgages.

Advantages: If you are going to be only staying in your home a short time an ARM is great since a borrower is able to exploit lower interest rates. Variable rate mortgages are also great if a borrower believes that interest rates will lower soon.

Disadvantages: It can be frustrating having your rate change sometimes month to month. If the market is bad, a borrower’s rate will be bad.

Terms of Variable Rate Mortgage or ARM- The term for ARM is usually 1, 3, 5, 7 year terms.

Hybrid Adjustable Rate Loan or Hybrid ARM- A hybrid ARM features an interest rate that is fixed after an initial period but then acts like an ARM thereafter. It hybrids together both a fixed rate and an Adjustable rate mortgage.

Advantages: Hybrids are the best of both worlds, getting a fixed rate at first but than later having more flexibility with the Adjustable Rate. Hybrids are particularly great if a borrower will not be staying in their home long.

Disadvantages: They have the disadvantages of both a fixed and an adjustable rate.

Term of Hybrid ARMS: Hybrid ARMS term is referred to first by the fixed amount rate and than the adjustable amount rate periods. For example ARM 3/1 is a fixed mortgage rate for 3 years and an adjustable rate for 1 year. The date the fixed rate switched to the adjustable rate is known as a reset date. A Hybrid ARM transfer some interest rate risk from the lender to the borrower allowing for lower interest rates.

VA Jumbo Mortgages- A jumbo mortgage is a mortgage that is higher than the typical loan amount. Jumbo loans may have a higher interest rate and different requirements for down payments than smaller home loans due to different underwriting requirements. Fannie Mae and Freddie Mac set standard for the maximum amount of a loan before it is considered Jumbo. The current limit is 417,000. Any home that costs more than 417,000 would be considered a Jumbo loan. With Jumbo loans Veterans will need to pay 25% on any amount over $417,000. Here is an example of how a jumbo loan works. A Veteran finds a home for 600,000. His maximum VA home amount is 417,000 with a $0 down payment. The Veteran pays 25% of 183,000 or 45,750. This amount acts in many ways similar to a down payment. Jumbo loans are required if you want to buy a more expensive home because lenders feel a greater risk.

In recent years many financial advisors have risen to prominence, perhaps as a direct result of the advent of more easily obtained credit, followed by the oppressive “Debt Culture” that now manifests as one of the worst recessions on record. And while the specific debt management and wealth building strategies made popular by Suze Orman, Dave Ramsey, Robert Kiyosaki or any of the other financial gurus out there vary distinctly, there is one fundamental financial strategy that they all seem to agree on; moving higher interest rate debt into lower interest rate debt saves money. In keeping with this fundamental tenet of financial freedom, if we can agree that ultimately what matters most is how much money comes in each month and how much goes out, then even if you currently have a fantastically low rate on your VA home mortgage, if you also carry balances on revolving debt (credit cards, lines of credit, etc.) at a higher interest rate than your VA mortgage, it may be time to consider a VA Debt Consolidation Loan or “Cash Out” refinance.

The VA Cash Out refinance can best be describe as a VA guaranteed refinance program for borrowers with existing VA mortgages OR those in conventional (non-VA) loans with existing eligibility. Because the loan, by definition requires the increase of the loan amount due to the rolling in of debt, it requires qualification similar to a full “documentation” loan similar to the VA purchase loan. This includes considering:

· Appraised Value / LTV (Loan to Value = the appraised value of the home / loan balance)

· Credit Scores & Debt Obligations (How much of your income is spoken for each month by credit payments, etc)

· Income (Do you have steady employment over the last two years? What is your gross household income?)

· Assets (Do you have any liquid / semi-liquid savings of any kind that prove your ability to save?)

If these basic requirements can be satisfied, the VA will guarantee loans up to 100% of the value of the home, though (currently) most lenders will not lend beyond 90% Loan to Value. The benefits are obvious, including the following:

· Debt Consolidation

· Home Improvement

· Competitive Rates, Favorable Terms,

· No Mortgage Insurance, even if you borrow over the customary threshold of 80% of your homes value.

· Defer mortgage payments and receive an escrow refund to free up immediate cash before making first payment

· Retaining VA loan status gives borrowers ability to take advantage of VA Streamline Refinance (IRRRL) if rates drop.

I recently closed on a VA debt consolidation loan for a veteran who had the following scenario:

· $225,000 VA Mortgage at 4.5% with a payment of $1600 per month (including taxes and insurance)

· Credit Card debt, totaling (over 5 cards) $32,000 and costing him $850 a month in minimum payments

· Income of $5500 a month with debt obligations totaling $2400 per month

At first, this borrower seemed fundamentally opposed to the idea of refinancing his mortgage, citing the fact that he had secured a 30yr fixed rate that he believed he would never be able to acquire again since rates had risen. He became much more receptive once I pointed out that it made no sense for him to have a mortgage of $225,000 costing $1600 a month when his credit payments on $32,000 were totaling more than half his mortgage payment and (unlike the mortgage) brought him no closer to paying down the balances.

Once we were able to get all the documentation settled, I was able help this veteran roll in all of his credit debt, and get additional money out for a home improvement project he had been considering. All told, when everything was said and done, we had helped him get into a loan at $270,000 on a fixed rate with payments at $1850 per month – a permanent savings of $550 per month. Over the life of the loan this will translate into a savings of $198,000.

Though I suspect the savings reflected in the above example might be the most compelling way to close out this post, I will instead end with an invitation. If you are a veteran homeowner and would like to know if there is any possibility that a refinance like this can help you save money, don’t hesitate to call James Shergill at 877-698-2482 to find out more. At the very least you will emerge from our brief discussion with a clearer understanding of your options. At best, you will save a great deal of money and take a giant leap forward toward financial freedom.

In his classic short story, the Jungle Book, Rudyard Kipling attributes the ability to manipulate fire as the dividing line between man and beast. Man’s “Red Flower” is understood by the animals as power, a means to dominion over those that fail to grasp its secrets. For years any further subtext into the metaphor was lost on me, probably reinforced by the (admittedly awesome) Disney animated film.

Recently however, I re-read this story and found a more profound meaning that resonates with my job as VA loan specialist. In the story, and the cartoon for that matter, Mowgli ultimately decides to return to live in the village among humans. If we were to assume that the author meant fire to be a metaphor for something as base and abstract as “power” the ending would seem sad. But when Mowgli watches those in the village from afar, they are hardly laying waste to the land with fire. Humans in the story are not maniacs, hell-bent on lording over their domain with flaming branches. They are living out a tame existence, using fire to cook, to heat their homes, to clear land for villages, to protect themselves from creatures, etc. This juxtaposition demonstrates how shifting ones perspective can alter the fundamental nature we attribute to something. Fire as a barely bridled weapon of fear, destroyer of life when viewed narrowly. Fire as a sustainer of life for another providing heat, clearing land for shelter, cooking and perhaps most relevantly to keep animals at bay.

Regarding VA loans, the metaphor is less obvious at first glance but ultimately resonates with a similar meaning. For the majority of veteran borrowers, a VA mortgage is a partially understood vehicle that can provide a means to homeownership. An unfortunate few realize that a VA mortgage (like fire) is not something to be feared but rather a tool, which, if mastered can provide more than crude shelter, but a means to unlock financial opportunities to lead a freer more enriched life. While the responsibility rests ultimately on the veteran buyer (“Caveat Emptor”) to learn of fire, a more critical look at our society might suggest the basic principles of lending are adequately disclosed but not adequately transmitted to those people to whom mortgages are made available. This tragic phenomena is less exclusive to veterans, than it is to the access to debt we offer young and inexperienced borrowers. Billions of dollars are made each year at the expense of borrowers to whom the concept, power and scope of debt concepts are adequately explained. Like fire, as the recent American debt picture suggests, many have been “burned” by the lure of seemingly easy access to debt. However, more millionaires and Fortune 500 companies have been built on carefully leveraged debt models as a standard practice of modern business.

Looking back on the novel with this in mind, I now understand that maybe the solution set to the balance equation presented between fire/debt is less important than the scale by which it is measured. A scale that is one in the same, one I try to keep in mind when I discuss loan options with my clients. Though I was never a financial scholar, the knowledge I’ve accrued about basic finance working with VA home loan borrowers has and will serve me for the rest of my life. Therefore, I understand that the best and most honorable way for me to faithfully execute my responsibility as a VA loan Specialist isn’t to push a rate or an agenda, but to determine what the borrower knows, to demystify the concept of debt, to speak openly of its potential and liability, and to guide them to a place where a confident application can be made. It’s always surprising how a simple perspective shift can open doors of understanding to opportunity, just as re-reading a childhood classic can

Many first time veteran home buyers find themselves at a loss as they negotiate the loan process. I’ve created a comprehensive, yet (hopefully) easy to follow overview of the major terms and concepts you many encounter.

LOAN TYPES

There are two basic loan types – VA Fixed Rate mortgages and VA Adjustable Rate Mortgages or VA HYBRID ARM’s. VA Fixed Rate mortgages are fixed for the entire term of the loan and are the most secure loans. The term can be anywhere from 10-50 years depending on the loan program but 95% of the time are fixed for a 30 year term. These are best for veterans on fixed incomes and for veterans who plan on being in a property for either an extended or indeterminate amount of time and have no plans to refinance.

Since most veterans know that they will either sell or refinance their home well before end of the 30 years, many individuals choose adjustable rate mortgages. VA HYBRID ARMs can come in a variety of terms, depending on the loan product but are for the most part also based on 30 year terms. However, VA HYBRID ARMs have an introductory fixed rate period ranging from 3-5 years at a lower rate than those of a 30 year fixed loan. In exchange for the benefit of a lower interest rate, once the fixed rate period ends the loan will adjust to the current market conditions of that time. 

It is a common misconception that when the Fixed rate period is up the loan rate will automatically increase. The loan will adjust according to the rate of the 1 year Constant Maturity Treasury Index (1yr CMT) + a fixed margin (usually 1.75-2.25%) which is determined at the inception of the loan. Let’s you had a 5 year VA HYBRID ARM at 7.5% with a margin of 2%. When the Fixed rate period is up after 5 years, if the 1yr CMT was at 4% then the interest rate on the loan would actually drop to 6%.  Conversely, if the 1yr CMT at that time was higher, say at 6%, the rate would go up to 8%. Regardless what the 1yr CMT is at when the VA Fixed Rate ends, all VA HYBRID ARM’s have built in rate adjustment caps that limit how much the rate can change each month, year, and over the remaining life of the loan. 

VA HYBRID ARM’s and VA Fixed Rate loans refer only to the interest rate on a loan. The terms Amortization and Interest Only refer to the payment schedulebased on this rate. Both VA HYBRID ARMs and VA Fixed Rate Loans are amortizing loans, although I will cover interest only loans as well to be thorough.

AMORTIZATION TYPES

Amortization refers to (with regard to mortgages) the repayment of the balance of the principle amount borrowed over a specific term. As mentioned earlier, loans have many terms and can be amortized over any of them. The key to understanding amortization is that it refers to a loan that is being repaid over the term of the loan. Banks “front end load” their loans in order to maximize their interest return. At the start of the loan, the bank calculates how much interest the rate they have locked you at will generate for them across the entire amount of the loan. When they receive your monthly payment, instead of equally distributing the payment to the interest due and toward reducing your balance, banks load the majority of the interest owed over the life of the loan into the first 10 years. Within the first year of a 30 year loan, the vast majority of the payment is going to pay the interest on the loan with very little actually going to pay down your principle balance. In the last year of the loan then, the majority of the payment will be going to pay down the balance, having paid the bulk of the interest calculated over 30 years in the first 10.

Interest Only loans are simply loans that do not amortize for a fixed period of time. On a 30 year interest only loan with a 10year interest only period, you will only be required to pay the interest due on the loan for the first 10 years. You will make no contribution toward principle. The interest you pay each month for the first 10 years is simple interest calculated by multiplying the balance (e.g. $100,000) times the interest rate (e.g. 6%) divided by the 12 months of the year. ($100,000 x .06 = $6000 , $6000 / 12 = $500+TI per month monthly payment for the first 10 years) By contrast, a $100,000 30 yr VA Fixed Rate amortized mortgage at 6% would be $599.55. Sure you might not be paying down your balance with an interest only loan but consider the following – you could take the $99.55 per month you were saving by not choosing an amortizing loan and:

1. Put it toward paying down higher interest rate credit card debt
2. Put it into an 6 month CD that would roll over every six months with compound interest taking advantage of rates as they rise. By doing this you would essentially be “hedging” the market against rising rates. 

Putting money toward your home is beneficial only if it is contributing to a lower payment. Many veterans believe the interest they pay over the life of the loan reduces as their balance does over time. This is not true. It only appears that way. Because of the way loans are structured, the amount of interest you pay over the life of the loan is based of the original NOTE amount or principle balance. This interest you actually pay is the “front-end loaded” interest calculated on this original amount. So this means the only way you will lower your payment on most mortgages is by refinancing and paying off a portion of the remaining balance owed in a lump sum, thereby reducing your future payments on the new loan with a smaller balance and NOTE amount. By putting your savings away on an interest only loan as described in the 6 month CD example, you could actually pay down your balance faster than an amortizing loan of equal rate. Whenever you refinance, simply take the amount saved by making the I/O payment + the interest you have earned on in and use it to pay down your remaining balance. Putting money toward the equity in your home isn’t really safe anyway. Imagine if you took the $99.55 per month saved and put it toward your balance each month. If the property depreciates, that money is gone. If you had been saving it in a risk free, interest bearing investment, you not only have the money you would have lost but all of the interest earned as well. 

CLOSING COSTS

The amount of VA loan closing costs you pay will be directly proportional to what rate you decide on. The general rule is: The higher the VA interest rate, the more projected interest the bank will make on you, the more flexibility the bank has to cover and or waive closing costs. You can choose to lock into rates even below prime if you choose to, but the bank will ask you to pony up with a commensurate amount of prepaid interest to “buy-down” your interest rate. It follows then that these fees are sometimes called “discount points”.

CONCLUSION

I hope this has been a helpful overview of the loan process and some of the key terms you may encounter. Feel free to check out some of my other posts (Linked Below) on specific VA loan products including the VA Hybrid ARM.

http://www.lowvarates.com/va-loan-blog/how-about-the-va-hybrid-arm/

http://www.lowvarates.com/va-loan-blog/veterans-need-to-take-advantage-of-the-va-hybrid-loan/

http://vimeo.com/10101207

Feel free to contact me any time with questions:

James Shergill

888-657-2848 ext 252 Toll Free Office Line

650-605-3638 Mobile

I do not view myself as salesman. I think the secret to “selling” a loan or anything else for that matter is simpler more honest than many may think. If I do nothing more than push an interest rate, then “I” am not selling anything; only the rate is. Too often many of us are conditioned to chase low interest rates simply because the perceived wisdom tells us to. In fact, there is no “one size fits all” loan program, rate or fee structure. Realizing this, helps us better serve our VA loan clients, helps our veteran clients make more sound decisions, and establishes a relationship of trust between the veteran and their loan officer.

I can see how reading this title at first might lead one to think this post was meant for people who work with or for me. I share this here to give my veterans an insight into my personal philosophy and how when it comes to giving a veteran the best deal and best service I can, our interests are more closely aligned than one might think.

The following then represents the steps I take on every VA loan.

1. Get the data and identify the veteran. This information gives a context to a veteran’s motivation for investigating a loan. Sometimes a veteran is unaware of the best option or, in some cases, convinced an alternate option is better than what you suggest. This helps frame basis of your advice. Questions might include: How much debt do you have, how much do you owe on the home, what is your payment.

2. Find out the veterans goals – This can be open ended: What are your intentions with a potential VA refinance? Or pointed requiring a yes no answer:

· “Are you looking to free up money to pay down other debts?”

· “Are you looking to free up money to supplement your income?”

· “Are you looking to pay the home off faster?

3. Check the time – “What is the minimum amount of time that you are sure you will own the home?” This question provides scope to the mortgage options you present.

4. Run the numbers & create a plan – At its most essential, a refinance is an investment. You agree to pay/add a certain amount of closing costs in exchange for an incremental savings over time. When the cumulative amount you have saved has equaled the costs of the refinance, you have achieved the “breakeven point” in the loan. From this point forward any savings experienced are now “true” savings. The optimum quote will be one where the loan program, rate and fee combination saves the veteran the maximum amount of money between the “breakeven point” and the end of the length of time they were sure they would own for.

5. Identify the risk – By determining the potential risk, advantages and drawbacks of the various options available you alleviate unknowns. Unknowns create uncertainty, and uncertainty prevents good decision making. A fixed rate loan is often thought to be the safest loan available, but not necessarily for someone who has a large amount of higher interest rate credit debt. By taking a VA Hybrid ARM, the veteran might save significantly more. Since credit cards calculate the interest rates on the ending monthly balance, the faster one pays off credit card debt, the more money they free up each month. I have often been able to show veterans how paying off credit card debt faster can free up enough money to offset the maximum “worst case” rate/payment they could ever reach on the loan.

6. Clarify details and explain the options – encourage the veteran to ask questions. It is often the case that veterans object to the Hybrid ARM simply because it is an ARM. To disregard all ARM loans simply because of the ARMs with unfavorable terms that have hurt many homeowners is like refusing to ever drive a car simply because Toyotas are currently being recalled.

7. “You sell ME.” – If a loan officer has completed the preceding steps perfectly, then a sale is no longer the issue. Once you have devised a plan that best meets their goals, mitigates their fears and ultimately saves them the most money, you are talking about common sense. Though I don’t directly ask this of my veterans, my philosophy is “you sell ME as to why you shouldn’t do this.” In my experience, following these steps through with this approach helps the veteran arrive at a clear and meaningful decision.

Veterans have many loan options and there are many lenders and brokers who they could work with and may even be able to offer the same deal you can. Following these simple rules help me to distinguish myself among the choices, and hopefully earn their business.

This blog post will be short and sweet because I want the video above to do the talking.  That said it is very important that any veteran home owner eligible for a VA streamline loan or even a VA cashout loan be aware that 4.5% VA rates have returned once again to the market!  Most of the approved loan officers here at LowVARates would have never guessed that we would have seen this low 30 yr fixed rate return, but we are all certainly happy that it has.  The FED will stop buying mortgage backed securities is just about a month, so we do not expect interest rates to stay this low much longer.  If you have been waiting to refinance, YOU BETTER DO IT NOW.

If you aren’t careful about your credit, you could end up paying dearly for a low credit score. Not only can a low score stand in the way of getting a loan for your dream home or dream car, but even if you do get the loan, a less-than-stellar score will make it expensive. As your credit score decreases, you become more of a credit risk in the eyes of lenders. This means they’ll attach a higher interest rate to your loan, and your monthly payments will jump. On the other hand, a high score will lower that interest rate.

Although the score has a big impact, keep in mind that there are other factors that influence the interest rate you get for a loan besides your credit score. These might include things like the type of property you are using the loan to buy, how much of your own money or equity is going into it, the costs the lender pays to make the loan and so on.

In addition to banks and lenders, there are landlords, merchants, employers and insurance companies jumping on the credit score bandwagon. Of all of these, the fact that insurance rates are being determined by credit scores is causing consumers the most alarm. To most, it seems that your credit history and your driving record have little in common. Insurers, on the other hand, have found that credit scores help them predict how likely someone is to file claims. The rule of thumb is the lower the score, the higher the likelihood of filing claims. ­They don’t use the same score that banks and lenders use, however. They use a slightly different formula for their calculations and actually call it an insurance score.

Insurers’ use of credit histories to determine rates is under scrutiny nationwide. Many states are passing laws restricting this practice. In a few states, insurance companies can’t make decisions based solely on credit. In some others, if an insurance company makes a decision that negatively affects your policy based on your credit, it must disclose to you the reasons behind the decision [source: CreditInfoCenter].

Another practice that particularly upsets consumers has to do with credit card companies’ policy of universal default. Although we’ve already learned how a credit score can determine your interest rate, in the case of credit cards, your interest rate can change at the drop of a hat — or rather, at a drop in your score. Even if you always pay your credit card bill on time, if you default on a completely separate loan, your interest on your credit card debt could rise dramatically.

Prospective lenders aren’t the only ones who judge you based on your credit report and credit score. Potential employers check out your credit report too. Why is that you ask? After all, they’re in position to pay you, not the other way around. But businesses reason that the way you handle your finances is a reflection of your behavior in other areas of your life. If you’re late paying bills, you may be late to work. If you default on your car loan, you may not follow through with an important assignment.

Even if your credit woes can be explained, bad credit is a distraction from the employer’s perspective, and it detracts from worker productivity. Recent research shows that employees with credit problems are significantly less productive on the job than those without. So, the easy way out for the employer is to not bother to find out what’s going on, but to hire someone with good credit instead.

Increasingly, credit checks are a standard part of hiring and even promotion process at companies large and small throughout the United States.

All this adds up to say that credit scores are enormously important. So putting a little thought into improving your score could prove a good investment.