Finances

Your Credit Score and Getting a Mortgage

Your creditworthiness is a big factor in determining your rate when applying for a loan.

It can provide good insight into your payment history and habits, which gives us a strong indication of how comfortable you will be making a mortgage payment each month. The actual number that reflects your creditworthiness is called your credit score (sometimes called a FICO score). Let’s dive a little deeper into credit scores and what they mean when applying for a home loan.

“Financial institutions have been using credit scores to evaluate credit card and auto applications for many years, but only recently have mortgage lenders begun to use credit scoring to assist with their loan decisions.”

A credit score is one of the pieces of information that we’ll use to evaluate your application. Financial institutions have been using credit scores to evaluate credit card and auto applications for many years, but only recently have mortgage lenders begun to use credit scoring to assist with their loan decisions. Credit scores are based on information collected by credit bureaus and information reported each month by your creditors about the balances you owe and the timing of your payments. A credit score is a compilation of all this information converted into a number that helps a lender to determine the likelihood that you will repay the loan on schedule. The credit score is calculated by the credit bureau, not by the lender. Credit scores are calculated by comparing your credit history with millions of other consumers.


Typically, credit scores are composed of the following factors:

35%
Payment History

30%
Debts

15%
Length of Credit History

10%
Variation in Credit Types

10%
New Credit & Recent Inquiries


Credit scores used for mortgage loan decisions range from approximately 300 to 900. Generally, the higher your credit score, the lower the risk that your payments won’t be paid as agreed. With lower risk comes lower rates.


Credit Score Ranges and Ratings

Excellent
750-900

Good
700-749

Fair
650-699

Poor
550-649

Very Poor
300-549


Using credit scores to evaluate your credit history allows us to quickly and objectively evaluate your credit history when reviewing your loan application. However, there are many other factors when making a loan decision and we never evaluate an application without looking at the total financial picture of a customer.

Two of the most commonly asked questions when asking to pull a borrower’s credit for their loan application are the following:

Will I be charged any fees if I authorize my credit information to be accessed?

There is no charge to you for the credit information we’ll access with your permission to evaluate your application online. You will only be charged for a credit report if you decide to complete the application process after your loan is approved.

Will the inquiry about my credit affect my credit score?

An abundance of credit inquiries can sometimes affect your credit scores since it may indicate that your use of credit is increasing. But don’t overreact! The data used to calculate your credit score doesn’t include any mortgage or auto loan credit inquiries that are made within the 30 days prior to the score being calculated. In addition, all mortgage inquiries made in any 14-day period are always considered one inquiry. Don’t limit your mortgage shopping for fear of the effect on your credit score.

If you’ve never had your credit pulled and don’t have any idea where you stand, you can request a free copy of your credit report from the three major credit reporting agencies (Equifax┬«, Experian┬«, and TransUnion┬«) once per year with no adverse effects to your credit. This can be done by visiting AnnualCreditReport.com or calling 1-877-322-8228.

Hopefully that gives you a better understanding of what a credit score is, what affects them, and how they affect YOU. Remember that although they are a very important piece of information when evaluating your application for a mortgage, our professionals will do a comprehensive assessment of your application to determine the very best options for you. Call one of our outstanding Loan Officers today to get any questions answered or to begin your path to homeownership!