Your credit score is one of the biggest factors in determining if you qualify for a mortgage. A good credit score can help you secure a lower rate, which could save you thousands over the life of your loan. Even if you have less than satisfactory credit, you do still have options when it comes to buying a home. But what is a credit score, and why does it matter?
In short, your credit score is a snapshot of your ability to repay a loan. It’s determined by a number of factors:
- On-time payments - If you have paid late, had an account sent to a collection agency, or have declared bankruptcy, this will have a negative impact on your credit score.
- Outstanding debt - Many scoring models compare the amount of debt you have with your credit limits. If the amount you owe is close to your limit, it is likely to have a negative impact.
- Credit history - A short history can have a negative impact but can be offset by on-time payments and low balances.
- Credit inquiries - Applying for too many accounts within a short time period can negatively affect your score.
- Types of credit accounts - Many scoring models consider the number and type of accounts you have. A mix of installment loans and credit cards may improve your score. Too many finance company accounts or too many credit cards will likely hurt your score.
A well-established credit score can have a positive impact on your qualifications for a mortgage loan. Lenders can use your credit score (as well as several other factors such as income, debt-to-income ratio, and your assets) to assess the risk of approving a loan based on your history.
Some of the easiest ways to improve your score are to:
- Pay your bills in a timely matter.
- Avoid making multiple big purchases on your credit card.
- Only apply for and open credit accounts when necessary.
- Ensure payments are made in accordance with your creditor’s requirements
A good credit score will not only help you qualify for a mortgage, but it also opens more options for loan programs. A good score can help you secure a lower rate and qualify you for programs that will decrease the overall amount you owe over the life of your loan.
Even if you don’t have a perfect credit score, there are several mortgage programs with more lenient credit requirements you may qualify for such as:
You have a multitude of options when it comes to choosing a home loan. An experienced lender at Flat Branch Home Loans can help you explore these options and determine what program will work best for you. Contact us today to get started!
