Know Your Credit
Mortgage brokers and mortgage lenders use your credit scores and the information reported on your credit report to determine whether you qualify for a home loan, home much of a down payment you will need, and what interest rate you will receive.
Checking your credit report early will help prevent unpleasant surprises and allow you to correct any mistakes. You’ll also need a good idea of your credit scores to make the most of budgeting and planning.
There are three major credit reporting companies – Equifax, Experian, and TransUnion. You can get a free copy of your credit report once per year from each company at www.annualcreditreport.com.
Review your credit report for any debts that you don’t recognize. Also, check for disputed items that still show up even though they were resolved. Verify that all paid debt is reported properly and that balances reported are close to the balances owed. Make sure there are no late or missed payments reported in error.
If you find any errors reported, file a dispute to get them corrected as soon as possible.
A credit score is a number calculated based on the information reported on your credit report. There are actually many different credit scores, and there are many ways to see your credit scores.
There are ways to get your credit score for free, or you can buy access to your scores.
Most mortgage lenders use FICO® scores.
When you check your own credit report or credit scores using www.annualcreditreport.com, the request is processed differently than when a mortgage company pulls your credit. Checking your own credit won’t hurt your scores if done through the proper sources.
Higher scores represent a better credit history and will make you eligible for lower interest rates. Other items, such as insurance premiums can also be affected by your credit scores. Your credit score is made up of five main factors:
Your payment history comprises 35% of the total credit score and the most important factor in calculating credit scores.
Credit utilization is the percentage of available credit that has been borrowed, this makes up 30% of your total credit score.
The length of time of your credit history accounts for 15% of your credit score.
The mix of your credit account types and the amount of new credit each make up 10% of your credit score.
Utah mortgage brokers will look at FICO scores from all three credit bureaus and use the middle score when qualifying you for a mortgage loan.
If you are applying for a mortgage jointly with a co-borrower, mortgage lenders typically look at both borrowers’ middle scores and use the lowerest of the two to determine your qualification and mortgage rate.
While there are no firm rules about exactly how much your credit score affects the interest rate, in general:
Those with credit scores in the mid- to high-700s or above will usually receive the best mortgage rates. These borrowers will also have the most loan products available to them.
Borrowers with credit scores in the high-600s to the low-700s may pay a slightly higher rate depending on the loan program.
Borrowers with credit scores in the low- to mid-600s range may pay a higher interest rate depending on the loan program. Fewer loan programs will be available.
Borrowers with scores below 600 will be very limited on their loan choices and may find it difficult to obtain a mortgage loan. Talk to your Utah mortgage broker, Advanced Funding Home Mortgage Loans for more information.