5 Things You Should Know About Your Credit Score
Your credit score is one of the most important factors when getting a home loan because it measures your ability and willingness to pay back debt. For this reason, your credit score needs to be cared for and maintained. Whether it’s for your financial well-being, or because you are getting a mortgage, caring for your credit score is essential.
Here are five things you should know about credit scores when getting a mortgage:
1. What is a credit score?
A credit score is a number that quantifies how “creditworthy” you are or how likely you are to pay debts back. Ranging from 300-850, credit scores are based on a mathematical model that assesses a person’s credit transactions throughout time. Most credit scores fall between 600 and 750.
2. How are credit scores used?
Credit scores are used for a variety of reasons. When it comes to mortgages, credit scores are used, in part, to determine how much money lenders are willing to loan a prospective borrower. Mortgage companies will generally use your credit score in the pre-approval process to decide how much to lend.
3. Is there more than one credit score?
Experian, TransUnion, and Equifax – also known as the “Big Three” – are among several credit reporting agencies in the United States. There are also various credit score vendors that use data from the big reporting agencies. In mortgage lending, each borrower’s credit report includes three credit scores, one from each of the “Big Three” agencies.
4. Why might a borrower see a different score than a lender does during underwriting?
Creditors are continually updating credit data, so credit reporting fluctuates. Due to there being multiple providers, you may also see differing scores based on a specific agency’s model. Keep in mind, not all creditors report to the credit agencies, and even if they do, the data may not be accurate or timely.
5. What’s the best advice for borrowers?
Check your credit scores regularly. There are a variety of tools you can use to monitor and possibly improve your scores. When you are serious about getting a home loan, we recommend getting pre-approved before doing any house hunting. A pre-approval from PRM will help you know exactly what you can afford, so you can then confidently shop for the home of your dreams.
If you have questions about how credit scores affect your mortgage, fill out the form below or contact us!
We are here to help!