Credit scores: three numbers that play a pivotal role in the mortgage application process. But what’s behind these numbers, and why do they matter so much?

Verify your mortgage eligibility (Sep 8th, 2024)

Decoding Credit Scores:

What is a Credit Score? In essence, it’s a numerical representation of your creditworthiness, derived from your credit history.

The Breakdown: Factors influencing your score include payment history, credit utilization, length of credit history, new credit, and credit mix.

How Scores Impact Mortgages:

Eligibility: Most lenders have a baseline credit score for applicants. Falling below this can make obtaining a mortgage challenging.

Verify your mortgage eligibility (Sep 8th, 2024)

Interest Rates: A higher score often means a better interest rate. Over time, a lower rate can save a significant amount of money.

Loan Types: Certain loans, like FHA loans, might be more accessible to those with lower credit scores, but they come with specific criteria.

Improving Your Credit Score*:

Timely Payments: Consistently paying bills on time has a positive impact.

Verify your mortgage eligibility (Sep 8th, 2024)

Limiting New Credit: Each time you apply for credit, it can ding your score. Be selective and strategic.

Reducing Debt: A lower credit utilization ratio (credit used vs. credit available) can help improve your score.

While a credit score isn’t the sole determinant in a mortgage application, it undeniably plays a vital role. By understanding and nurturing your credit, you can pave a smoother path to homeownership.

Show me today’s rates (Sep 8th, 2024)

Credit Score Ranges and What They Mean

Credit scores typically range from 300 to 850. Understanding where you fall within this range can help you gauge your mortgage eligibility. Here’s a general breakdown:

• Excellent (750-850): Access to the best mortgage rates.
• Good (700-749): Competitive rates, though slightly higher than excellent credit.
• Fair (650-699): Eligible for loans but may face higher interest rates.
• Poor (600-649): Limited loan options with stricter terms.
• Very Poor (Below 600): Challenging to secure a mortgage without special programs like FHA loans.

The Role of Credit Bureaus

Three major credit bureaus—Experian, Equifax, and TransUnion—collect and maintain credit information. Mortgage lenders often review reports from all three to assess an applicant’s risk level.

Hard vs. Soft Inquiries

Applying for a mortgage results in a hard inquiry, which can temporarily lower your score. In contrast, checking your own score is a soft inquiry and doesn’t affect your rating.

Credit Score Myths Debunked

• Closing old credit cards helps your score. (Not always! It can reduce your credit history length.)
• You need perfect credit to buy a home. (Many lenders approve loans with scores as low as 580 for FHA loans.)
• Checking your credit score lowers it. (Only hard inquiries impact your score.)

Steps to Boost Your Score Before Applying

• Dispute any errors on your credit report. Incorrect negative marks can lower your score.
• Become an authorized user on a well-maintained credit card. This can help build positive credit history.
• Avoid major financial moves before applying. Taking on new debt can affect your mortgage eligibility.

By taking proactive steps to manage your credit, you can secure better mortgage options and save thousands over the life of your loan.