Confused about how your credit score could impact the mortgage process? We’re here to help.
Your credit score is a direct reflection of your risk as a mortgage borrower and the likelihood that you’ll repay your loan. As such, it plays a big role in what mortgage loans you can choose, the interest rates you’ll pay and what qualifications you’ll need to meet for approval.
Are you considering buying a home in Raleigh? Want to know how your credit score might impact your prospects? Browse the below resources or reach out to the Perennial Mortgage Group of Raleigh team for more personalized help.
Your credit score is a numerical representation of your credit-using habits. It reflects everything from how long you’ve had your accounts and how often you pay them on time to the total balances you currently hold. Credit scores can range from 300 (the lowest) to 850 (the highest). Scores above 740 are considered “prime” credit scores.
Mortgage companies use your credit score to gauge your risk as a borrower. A high credit score indicates you’re likely to repay your loan and make timely payments. A lower score means you’re less so. Higher credit scores will generally qualify you for lower interest rates and higher loan balances.
Your mortgage lender isn’t going to see the same credit report you’d pull on your own. Instead, they’ll get scores from each of the three credit bureaus (TransUnion, Equifax and Experian) and use the middle score as the best representation of your risk as borrower.
Want to improve your score or understand why it’s not as high as you might have hoped? Here are the five factors that play a role.
The length of your accounts, as well as how long you’ve had credit in general, accounts for 15 percent of your score. The longer you’ve had credit and the more long-standing accounts you have, the better the impact.
The types of credit you have to your name also play a role, accounting for 10 percent of your overall credit score. A good mix of both installment and revolving debt will have a most positive impact, while having no revolving debt will do the opposite.
The total amount of available credit you’re using makes up 30 percent of your score. Accounts that are nearly maxed out will send your score lower. Balances that only make up a small fraction of the overall limit will have a positive influence.
Your history of repayment makes up 35 percent of your credit score and is the single-biggest influencer there is. Consistent, on-time payments month after month will equate to a higher score, while late payments, collections and overdue accounts will hurt it.
Hard credit inquiries, which occur when a credit card company or other type of lender pulls your credit file, account for 10 percent of your score. The more hard inquiries you have (and the more recent they are), the more it can negatively influence your overall score.
Credit scores change in real-time, and any change in the above factors can send it up or down. If you’re score isn’t perfect, consider taking time to pay down your balances and settle any collections. This could increase your score and your homebuying prospects.
Want to know how your current credit score would influence your Raleigh homebuying goals? Get in touch with a Perennial mortgage company representative today. We’re here to help.