Credit Scores Affect Mortgage Loan Rates
Overview
There are 5 key factors that make up your credit score and they are weighted approximately as follows:
- Amount Owed – 30% of your score
- Length of Credit History – 15% of your score
- Credit Mix (types of credit in use) – 10% of your score
- New Credit – 10% of your score
Why is this important?
When you go to apply for a mortgage, one of the first things we do is pull your current credit rating. We will look at all three of your scores from the credit bureaus (Equifax, Transunion, Experian) and use the middle of these three scores. Each of the three scores will vary slightly because each bureau uses a slightly different scoring model.
The best rates typically come with a credit score above 740 on a conventional loan. You may end up with a slightly higher interest rate if your score is below 740.
If your credit score is below 550, you may need to work on raising your score before you’ll be able to qualify for a mortgage loan.
Tips to raise your credit score
Most importantly, always pay your bills on time. Your payment history makes up approximately 35% of your credit score and therefore, even one missed payment can severely impact your score.
If you’re going to be applying for new credit (i.e. credit cards, installment loans, car loans and car leases) try to do so sparingly. Your score may be impacted if you apply for too many new loans at once.
Once you are prequalified for a mortgage, don’t open any new credit without first checking with your certified loan officer.
Finally, the sooner you start your credit history, the better off you will be, as the longer your credit accounts have been open, the higher your score will be.
If you choose to obtain a mortgage loan through us, we will do a full analysis of your credit report and ensure that you’re using all of the tools available to get the best mortgage deal for your scenario. Contact us for more information.
