When you apply for a home loan, your credit score is one of the most important factors that determines the interest rate you’ll pay. It gives mortgage lenders a clear look into your financial habits, including your payment history and how you manage debt. This helps them understand how likely you are to make your monthly mortgage payments on time.
Your credit score or FICO score is the number that reflects your creditworthiness. Let’s dive a little deeper into what a credit score is and how it impacts your home loan application.
Understanding Your Credit Score
As one of the many pieces of information that mortgage lenders use to evaluate your application, your credit score is a numerical snapshot of your credit history. Credit bureaus (like Equifax, Experian, and TransUnion) calculate your credit score by compiling information from your creditors, such as balances you owe and payment history. This score helps your lender quickly and objectively determine the likelihood that you will repay the loan.
What Makes Up Your Credit Score?
Credit scores range from 300 to 900. Generally, the higher your score, the lower risk you represent to your lender. Lower risk often leads to a lower interest rate on your mortgage.
Here is a breakdown of the key factors that influence your credit score:
Payment History (35%): Your track record of making payments on time.
Amounts Owed (30%): How much debt you currently have.
Length of Credit History (15%): How long your credit accounts have been open.
New Credit (10%): How many new credit accounts you have recently opened.
Credit Mix (10%): The variety of credit types you have (e.g., credit cards, auto loans, student loans).
Credit Score Ranges and Ratings:
Excellent: 750-900
Good: 700-749
Fair: 650-699
Poor: 550-649
Very Poor: 300-549
Common Questions About Credit and Mortgages:
We often hear these two questions when we ask to access a borrower’s credit for a loan application
Will I be charged a fee to check my credit?
No. We don’t charge you for the initial credit check to evaluate your application. You will only be charged for a credit report if you decide to complete the application process after your loan is approved.
Will checking my credit affect my credit score?
A “hard inquiry” from a mortgage lender can sometimes slightly affect your score, but don’t let that stop you from shopping for the best loan. All mortgage inquiries made within any 14-day period are counted as a single inquiry. This helps you compare loan options without negatively impacting your score.
Get a Free Credit Report:
If you’ve never had your credit pulled and want to know where you stand, you can get a free copy of your credit report once a year from each of the three major credit reporting agencies. You can do this by visiting AnnualCreditReport.com. Checking your own report has no impact on your credit score.
Ready to start your journey to homeownership? Contact us today to get pre-approved!
