You know your credit score is important, but do you know why?
When it comes to mortgage loans, your credit score tells your lender how likely you are to pay back your debts. The higher your credit score, the more likely lenders are to see you as financially trustworthy. Your credit score, more specifically your FICO score, gives lenders an inside look into your financial history and how you’ve handled accounts under your name. Ultimately, this will determine what loan program(s) you’ll qualify for.
How is my Credit Score Calculated?
Not all credit scores are determined equally. For the purposes of a mortgage we’ll be discussing the industry-standard FICO score. Your FICO credit score is determined by a few key factors:
- Payment History – Late or missed payments can lower your credit score.
- Amount Owed/Credit Utilization – As the amount you owe increases, the probability of you being able to make your payments on time each month decreases. Furthermore, your score can be lowered by utilizing most of your available credit.
- Length of Your Credit History – As a general rule, your credit is in higher standing the longer your accounts have been open.
- New Credit – Opening multiple lines of credit within a short period of time can be a red flag for many creditors.
- Credit Mix – The different lines of credit you have open can play a role in your overall credit score. Being able to manage a variety of loan types is a good sign to lenders.
Your credit can either open or close the door to opportunities, which is why it’s important to work toward having a favorable score.
Checking Your Credit Score
Good news, the days of jeopardizing the wellness of your credit score just for checking it are long gone! There are plenty of websites that offer free services to check your credit score quickly with minimal information. Having a solid history of good credit will help you qualify for better loan programs with lowered interest rates; and who doesn’t prefer a low interest rate?
It’s important to note, free services will not offer your exact credit score and should always be researched to ensure that they are a trusted and secure source. Even the most reputable free source can only provide you a ballpark figure to base your mortgage decisions off of. Their results should not be taken as your true credit score. However, if you are interested in finding out your legitimate FICO score, you can visit myFICO.com and pay a monthly fee that will allow you to receive the credit score that lenders will use when deciding what programs you’ll qualify for.
Improving Your Credit Score
While there are loan options available when your credit is less-than-favorable, a strong score can open opportunities to qualify for loans that may be more beneficial for you in the long-run. So, how do you improve your credit score?
Start by making sure every account under your name is paid up and in good standing. Enroll in auto-pay options to ensure your payments are always on time. Another effective method to improve your credit is to lower your credit utilization by paying down your balances. Lastly, check your credit often to make sure everything is up to par and there aren’t any discrepancies on your account. Doing all these suggestions will help you get your FICO score back on track and enable you to receive the funds you need.
What Loans Am I Qualified For?
Homeside offers a variety of mortgage loans to fit your specific situation. Contact your local loan officer today to learn more about what options may be available to you by using the Find A Loan Officer tool.