Your credit score questions, answered
By Academy Mortgage Corp.
Before you take out a residential mortgage, your lender will need to review some financial information with you, one piece of which is your credit report.
If you've never pulled your credit report or considered what your credit score might be, this part of the process might make you nervous. It shouldn't, though; your credit report and credit score will simply tell the lender how good you are at paying off debt and how much debt you currently have. The higher your score, the better, but that doesn't mean you won't be able to secure a good home loan with an unimpressive score.
Here's what you need to know about credit scores, credit reports and how they affect the mortgage origination process:
What's a credit score?
Your credit score is a three-digit number on a scale of 300-850. Everyone has multiple credit scores because different credit bureaus calculate them independently. To come up with the three-digit score, the companies use complicated proprietary equations.
Even though they don't share the equations with the public, FICO, the most well-known score-calculating company, explains how different factors impact your score:
- 35 percent of your score relates to payment history.
- 30 percent relates to amounts owed currently.
- 15 percent relates to how old your oldest form of credit is.
- 10 percent relates to the diversity of debt you own.
- 10 percent relates to how new your newest form of credit is.
What is a "good" or "bad" score?
Generally, scores that are 700 or above are considered good, and scores over 750-800 are considered excellent. These scores indicate you pay your bills on time and know how to manage multiple forms of debt, making you an excellent candidate for a home loan.
Scores of 550-580 or below are considered very poor. It would be difficult to get a loan of any kind with a score like this. If you discover that your score falls into this category, though, don't worry; there are plenty of strategies you can adopt to bring your score up.
Does everyone have a credit score?
No. If you've never opened a credit card or taken out a loan, you may not have a score, meaning you're "credit invisible." This can make taking out a loan challenging, but not impossible.
What score do I need to get a mortgage?
There's no clear-cut answer to this question because different programs have different requirements. People with credit scores as low as 580 may be able to get an FHA loan, and there's no minimum credit score for VA loans. The best thing to do is to reach out to your mortgage lender and talk about your options - you may have more than you think!
What's a credit report?
While many people talk about credit scores, your lender will want to see your entire credit report. There's a difference here; your score is just that three-digit number. The credit report details what factors went into the equation that resulted in your score.
Your lender will likely pull your credit report directly from one or more of the three main credit bureaus: Experian, Equifax and TransUnion. But don't wait for your lender to pull the report to discover what's included in it for yourself. Everyone has access to their own reports through the government-mandated website, annualcreditreport.com. You can get one free credit report each year from each of the three bureaus.
If you've never pulled your credit report, try it today. There's always a chance that there's an error included in it that could affect your score, and it's best to sort that out sooner rather than later. Plus, it's always nice to know what your lender will see ahead of time, so there's no surprises when you inquire about your eligibility for a home loan.
Academy Mortgage is one of the top independent purchase lenders in the country as ranked in the 2016 CoreLogic Marketrac Report. Visit www.academymortgage.com to find a loan, get a rate, or calculate your payment today.