When you apply for a home loan from a mortgage lender, the lender takes various steps to examine your creditworthiness and ability to repay the money you’re asking for. One of the biggest tools used here is credit score, which was created by FICO (Fair Isaac Corporation) and uses information from your credit history and various financial files to come up with a single three-digit number that expresses your creditworthiness.
At Altius Mortgage and our partners at Mortgage Ogden, we can help you get a great mortgage loan with a variety of credit score ranges. Let’s go over some of the simple things you need to know about credit score before acquiring about a mortgage.
Credit score is determined by using five categories, each of which has dedicated weights that determine how important it is to the overall equation. These categories, in order of weight:
Using the weights above, your credit factors are all crunched and then expressed in a single number that ranges between 300 and 850, with 300 being the worst and 850 being perfect credit.
There are several online resources where you can get your credit score for free and without affecting the score at all. One good site is Annual Credit Report, but there are others. Be sure to check all information on your credit card for accuracy, as mistakes do happen and can be reported.
Here’s a basic range of credit scores:
If you’re in one of the higher ranges here, you’re in great shape for a mortgage. You’ll have lower interest rates available to you, as lenders are able to trust you more and don’t have to build in as much insurance against the risk of default or nonpayment. You can still get a mortgage with a lower credit score, but your options will be more limited and your rates will often be higher.
There are several ways to improve your credit score if it’s low, all of which relate to the calculation factors we went over above. Prioritize on-time payments and never miss any important due dates, plus keep the percentage of your overall credit used as low as you can. Don’t apply for multiple new accounts at once, particularly near a mortgage application, and leave older accounts open even if they’re paid off to show a lengthy history.
For more on credit score, or to learn about any of our other mortgage options, speak to the pros at Altius Mortgage today.