The term “credit score” is frequently used when applying for a home loan, but it may not be widely understood. Understanding credit scores and their purpose will help you become a smarter home buyer and mortgage applicant.
Credit scores can be a confusing and challenging topic to understand, even for the most financially savvy people. A credit score is a number that lenders use to help them decide how likely it is that you will repay your loan on time. This is a record of money you have borrowed, your history of paying it back, and how much credit is available to you. Lenders rely on this information to determine if you qualify for a home loan and the risk involved in loaning you money.
Credit scores are built on your personal credit history and can range from 300 to 850. A good credit score is important for your financial well-being and the higher it is, the less of a credit risk you are to lenders.
There are two types of credit scores: generic and custom. A generic score is used by many types of lenders and businesses to determine general credit risk. Custom credit scores are developed for use by individual lenders. They rely on credit reports and other financial information.
There are a few different factors that make up and shape a credit score. Some factors include:
It is important to monitor your credit on a regular basis and keep a close eye on these factors. Do everything you can to improve these factors to ultimately improve your credit score.
Every home loan type has its own minimum credit score.
Yes. It is possible to obtain a mortgage even if your credit is low, but it is more difficult. A low credit score shows a lender that you may have a history of missing monthly payments and running up debt. This makes you a riskier borrower and more likely to get a higher interest rate on your home loan. Be prepared for these circumstances to occur and start saving for a higher down payment.
For those with lower credit scores, it is possible to raise your score and improve your chances of getting approved for a home loan. This process starts with staying aware of your current credit profile. Here are some tips below:
Credit score requirements differ based on the type of home loan you are looking to apply for. Our team at AnnieMac Home Mortgage are ready to help you get the mortgage process started and discuss your options depending on your current credit score.