From the course: Financial Basics Everyone Should Know
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Understanding credit scores
From the course: Financial Basics Everyone Should Know
Understanding credit scores
- [Instructor] Banks originate the large majority of home and car loans across the United States, which means that they have a huge impact on many people's lives. To get a loan, you'll need to show that you have a steady income which will let you support the debt you're taking on. A common rule is that mortgage debt cannot be more than four times your annual income. So if you make $50,000 for example, you could borrow $200,000 from a bank. Four times 50,000 equals 200,000. You will need two years of tax returns, plus two recent pay stubs from your employer to demonstrate your income. You also have to have a good history of paying back money you borrow. In other words, you need a good credit score. Credit scores help the bank to judge how risky you are as a borrower and whether or not they should give you that loan. Your credit score is important because it is key to getting a loan for a house or a car. Probably the most important role that banks play in most people's lives is…
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