Though it consists of just three numbers, your credit score can have a major impact on whether or not you are given the opportunity to obtain a mortgage loan.
Mortgage lenders use credit scores to get an idea of how you manage your money and your credit. Credit scores are also used to determine your interest rate on a mortgage. Essentially, the better the credit score, the lower the interest rate.
Several pieces of information go into determining a person’s credit score, and the weight of importance of each factor in deciding whether or not you are eligible for a loan depends on the mortgage lender. Here are a few credit score factors that mortgage lenders may consider:
- How much available credit you use
- Length of your credit history
- Whether you have ever requested an extension of your credit limit
- Your credit card payment history
- Whether you have filed for bankruptcy
- Whether you have lost your home through foreclosure
- Whether a court judgment has been filed against you
Credit score factors are not the only pieces of information that mortgage lenders will look at when deciding the status of your loan issuance. They may also consider your overall debt compared to your monthly income and whether you consistently pay your bills and/or rent on time, if you are a renter.
You can be proactive about improving your own credit score. It is suggested that you do not apply for any new credit accounts if you are planning to apply for a mortgage loan in the near future. Also, work to reduce your credit card balances, but do not close the accounts entirely. Having credit available but not using it looks good to mortgage lenders.
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