Understanding Credit Scores During Mortgage Process

This guide covers understanding credit scores during the mortgage process. Many things in your life can be affected by your credit score and your credit history. Everything from buying a car to renting an apartment to looking for a new house to even dealing with an emergency will be impacted by how you’ve handled your credit in the past.  Understanding credit scores will save you tens of thousands of dollars over the term of your mortgage loan.

 When a creditor pulls your report, whatever is on it will contribute to the amount of credit you can access, how much it will cost you, and how high your interest payments will be.

Applying for too many credit cards at one time, failing to make payments on time (or at all), and filing bankruptcy can restrict your access to credit when you need it. Additionally, negative marks can remain on your credit report for over six years, affecting you for years to come. In the following paragraphs, we will discuss things to remember when understanding credit scores during the mortgage process and  managing your credit responsibly. 

Understanding Credit Scores and Factors That Negatively Affect FICO

This important three-digit number will determine many things in your life. Generally, credit scores will range somewhere between 300 and 850, and the higher it is, the better. This number is based on your credit history and a marker of your “creditworthiness.” Lenders look at this number to determine how risky it is to lend you credit and how likely you are to pay it back.  Some common things that influence your credit score include:

Timely Payment History in the Past 12 Months

Any derogatory marks on your credit report from late or delinquent payments will play into the lender’s decision to provide you with credit and your credit score.  Payment history in the last 12 months is very important.  Lenders will check to make sure that you make your payments on time. 

Creditors will look to see what kind of payments you make. If you pay the minimum balance every time, a lender may see you as more of a risk than someone who pays larger chunks. Sometimes, even their whole balance – all at once. 

How many credit accounts do you already have? Typically, if you have tons of open credit accounts, this can affect your credit score.   Credit history length : The time you’ve spent using credit will contribute to your overall credit score. How many inquiries have you’ve had recently? Having many lenders look at your credit score, especially over a short period, can take your score down several points.

Overview of Understanding Credit Scores and Reports During The Mortgage Process

Your credit report and your credit score are two different things. The credit report has your credit score, but it also has additional information such as your name, date of birth, employment status, address, and phone number. It gives a detailed snapshot of your credit accounts – both opened and closed. This is where potential lenders can see negative marks and other information, such as your payment history and bankruptcy status.  

Managing and Understanding Credit Scores and Report 

Experian, TransUnion, and Equifax are the three major credit agencies. You can pull your report for free once every year from each of these agencies. Additionally, companies are required to send you a report if you have been denied credit so that you can determine why. While many people think it counts against them if they check their credit, that’s not true.  

Sometimes mistakes are found on your credit report, so it’s important to ensure these agencies have the correct information. If you find something incorrect there, you can dispute the information.

You can find information on each of these agencies’ websites telling you how to go about disputing incorrect information on your report. Once they have received your complaint, they legally only have 30 days to investigate the claim. If you haven’t heard back from them within this time frame, contact them again.   Another way you can manage your credit score effectively is to make your payments on time. If you consistently make late payments or forget to pay your bill, This will show up on your credit report and deter other lenders from providing you with credit. This is why consumers understanding credit scores is very important.

Understanding Credit Scores and Credit Payment History

Suppose you find yourself in a situation where you need to repair your credit history. There are several things you can do to achieve a higher score. If you are late on any of your payments, the first step is to catch up so your account is in good standing. It’s also a great idea to pay off as many credit cards as possible.

It’s also a good idea to limit the amount of credit you apply for at once. While it may seem like a good idea to apply for several different cards in case a couple denies you, this can be a red flag for companies, who may choose not to give you access to credit.  

Understanding credit scores will save you tens of thousands of dollars during the term of your loan. Creditors assess the percentage of your available credit used up. That means if you have all of your credit cards maxed out, this can lead to a low credit score. It’s generally a good rule of thumb to only  utilize 30% to 35% of your available credit. Not only will this help your credit score, but it will actually help if you have an expensive emergency that requires you to use more credit.  

Understanding Credit Scores and Credit Utilization Ratio To Get Lower Mortgage Rates

Not everyone can pay down all of their cards all at once, however. If this is the case, it’s a good idea to focus on paying down your credit cards as soon as possible. Remember not to close them once you have paid them off. This can cause your credit score to drop for several reasons. The credit utilization ratio maximizes your overall credit scores.

Lpwer credit utilization ratio can increase the percentage of credit that you’re utilizing relative to the amount available. Additionally, your length of credit history is determined by the oldest card you have open.

It’s usually considered best practice to leave open the card you’ve had the longest, even if you aren’t using it.  When it comes down to it, managing your credit report and credit score isn’t as difficult as it may seem. Knowing how to read your credit report and how to use your credit cards responsibly  will go a long way toward helping you achieve or keep a good credit score.