4 Things to Understand About Credit Scores Before Applying for a Mortgage

4 Things to Understand About Credit Scores Before Applying for a Mortgage

May 1st, 2019 | Credit

Your credit score is an essential factor in determining much about any mortgage loan you receive. A credit score is a measure of your trustworthiness as a borrower. It pays to know as much about your credit score as possible before applying for home loan funding. Here are four key points to understand:

1. Credit Scores Are Calculated by Financial Formulas

Credit scores (also called FICO scores because they were created by the Fair Isaac Corporation) is determined by a several factors. The weightiest element - 35% - is your payment history. The more often you have been late on making your payments, the lower your credit score will be. The next largest factor - 30% - is your utilization rate. The is the ratio of how much debt you owe compared to your total available credit. Maxing out all your credit accounts will pull your score down. Another 15% of your score is made up of the length of your credit history. Shorter histories give credit bureaus less data to evaluate and may bring your score down. The types of credit you have accounts for 10% and the last 10% is determined by the number of inquiries on your credit report. That means how often you are applying for new credit accounts.

2. You Can Check Your Credit Score for Free

Your credit score is available through the three major credit reporting bureaus – Equifax, Experian, and TransUnion. By federal law, you are allowed to check your credit report once year from each of the credit bureaus. Some websites will allow you to get the actual FICO score for free while other will require a fee. And checking your own credit score will not have a negative impact on your score. In fact, it is a good idea to check your credit report at least annually to look for any inaccuracies and to make sure your score is where you expect it to be.

3. Credit Scores Affect Mortgage Interest Rates and Loan Amounts

Credit scores are 3-digit numbers ranging from about 300 to 850. Good scores start at about 680 and truly poor credit begins under 620. If you have a score above 720 you will be able to qualify for the best mortgage rates. The lower your score, the higher your interest rate is likely to be. The lowest credit scores may disqualify you from certain loan programs as well. With excellent credit you may be able to borrow more for a home than you would with a less-favorable credit report.

4. You Can Take Steps to Improve Your Score

The good news is that if your credit score is not where you’d like it to be, you can improve it. The best way to push it up is to start making all your payments on time. This will take some time to show up in your score but it will have the biggest impact. You can also pay down all your credit accounts to roughly 30% of their limit to lower your utilization rate. And if you limit the number of new accounts you apply for in a given period, you may also be able to raise your score.

Once you understand these basic facts about credit scores, you will know how your score will affect your mortgage terms and will be in good shape to apply for a home loan.


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Prime 1 Bancorp, Ltd is not affiliated with any government organization or bank nor do we act on behalf of the FHA or VA. This material is not from HUD or FHA and has not been approved by HUD or a government agency. We are not a Federally chartered or State Chartered Bank. We are an we are an Illinois Residential Mortgage Licensee by the Office of Banks and Real Estate License #MB.6761138, a Colorado Registered Mortgage Brokerage by Division of Real Estate, a Florida Residential Mortgage Brokerage Licensed by the Office of Financial Regulation License #MBR1930 dba Prime 1 Mortgage Inc, a California CFL Licensed Mortgage Brokerage by Department of Business Oversights 60DB055973 and a Texas SML Licensed Mortgage Brokerage by the Texas Department of Savings and Mortgage Lending. Prime 1 Bancorp, LTD Corporate Office is located at 2720 S. River Rd Suite 50, Des Plaines, IL 60018 our Toll Free Number is 888-205-3737. NMLS: 1434638

Loan product availability is subject to qualification of the borrower and loan approval after full review of the file. Not every applicant qualifies or is eligible for every loan program. Some loan products may not be available in all states. Loan approval, note rate and annual percentage rate are dependent on factors including, but not limited to, credit, collateral, income, assets and overall financial history. Not all applicants will be approved for a loan. All loan programs, terms and annual interest rates are subject to change without notice. NMLS: 1434638