When you're getting ready to buy a home, make sure all aspects of your finances are in order. A successful mortgage application and the long-term repayment of the loan will depend on multiple factors. One of the key numbers to watch is credit score.
While it's tempting to ask for a single number that represents good credit, or a sufficient score to receive a mortgage, the actual requirement is never black-and-white. It pays to learn what goes into credit scores and how they affect home loan decisions.
Credit score isn't just one number
Since it's common to hear your credit score referred to with no qualifier, it can be surprising to learn that multiple companies create credit scores. The most frequently referenced score type is issued by the Fair Isaac Corporation, known as FICO.
The Consumer Financial Protection Bureau (CFPB), a government agency, added that you may even get different credit scores from the same company – the measurement is determined by the contents of your credit report. There are three major providers of these reports: Equifax, Experian and TransUnion. Furthermore, the calculations that turn a report into a score tend to differ depending on whether you're seeking a mortgage, a vehicle loan or another type of loan.
Considering all the many variables that go into determining a credit score at any given moment, it makes sense that there's not one distinct range of numbers that make you eligible for a home loan. Instead of aiming for a target value, you can focus on improving the various elements of your personal credit.
Learn key credit score information
The CFPB gave out a list of the data that will go into your credit score. These are the aspects of your finances that will determine how well you score on the typical scale of 300 to 850. Your credit card and loan payment history is a major contributing factor in a credit report or score, with on-time payments helping your cause and accounts entering collection bringing the number down. Financial assessors will also look at debt on credit lines and loans, as well as how long you've been actively borrowing money.
The way you've managed various loans in the past is another data point that goes into your credit report. You'll also be judged on whether you've applied for many new loans in the six to 12 months before the current report. This last point is important to consider because it's under your direct control. Refraining from applying for loans and lines of credit in the run-up to a mortgage application may reflect well on your credit report and the resulting score.
A Range of Options
Depending on loan type, home value and circumstances such as the house's location or your financial qualifications, you may find a wide variety of affordable mortgage options that fit your needs.
Speak with a Loan Officer at First Centennial Mortgage to learn more about loan products that will work for you. Even if you've had credit problems in the past, there are offerings designed to get you the new home you want.
Do you have more questions? Contact the loan officer who shared this blog post or send us a message.