Your Credit Score and Mortgage Rate

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Understand Your Credit Score to Secure the Best Loan Possible

Understanding credit is vital when applying for a mortgage. Not only can your credit history determine whether you qualify for a loan at all, your credit score is the single largest determinant of the interest rate of your loan. Apex empowers our borrowers with the credit resources they need to understand how credit affects lending options, how to obtain their credit information, and how to get started on the path to improving credit.

Credit scoring basics

A credit score is a numerical ranking that identifies how much risk you pose to a lender. Credit scores are determined exclusively using information found on your credit report. Factors used to determine your credit score include payment history, outstanding debts, credit history length, and other, less weighted considerations. Borrowers and lenders alike place a great deal of importance upon credit scores because they have a large impact on the interest rate of your loan, influence which loan program best suits you, and illustrate your reputation as a borrower. 

Credit scores can differ between reporting agencies and lenders. Reporting bureaus often use slightly different mathematical models to determine your score, and in some cases the agencies may have different information about your credit. Lenders frequently choose the scoring model that best fits their needs, and the most widely used type of credit score among lenders is the FICO score. FICO scores range from 300 to 850. The higher your score, the better. FICO scores are considered an industry benchmark. Get a free copy of your credit report every 12 months from annualcreditreport.com. To contact the reporting bureaus regarding your score see the numbers below:

Equifax
1-800-685-1111

TransUnion
1-800-888-4213

Experian
1-888-397-3742

Understanding your credit report

The purpose of a credit report is to establish your creditworthiness. Your credit “reputation” and repayment history are detailed in this document to help a lender approve your loan. Credit reports contain four sections:

  1. Identifying information. Here you can find your Social Security number, name, address, telephone number, and other basic information.
  2. Credit history. This section contains all accounts for which you’ve been granted credit, the creditor of those accounts, payment amounts and other account activity details.
  3. Public records. If you’ve ever filed for bankruptcy, have had a tax lien, or experienced other financial hurdles, they will be reported here.
  4. Inquiries. Any time you or a creditor access your report, it is recorded and detailed in this section.

How to improve your credit score

Your credit score is only one part of a larger lending picture. Mortgage companies evaluate a multitude of factors when determining your loan eligibility. Income stability, employment history, property value, and many other aspects of your financial situation are considered in addition to your credit. If your credit needs work, it does not necessarily mean that you won’t qualify for a loan. There is also nothing you can do to your credit from which you can’t recover.

Here are four basic ways you can improve your credit:

  1. Evaluate your credit report and dispute any inaccuracies. If you find mistakes or accounts that don’t belong to you, you should dispute those items. Credit bureaus must respond to disputes within 30-45 days by law.
  2. Make payments on time and stay up-to-date on your accounts. Older credit delinquencies have a smaller impact on your score than recent late payments, therefore establishing a pattern of good payment practice can boost your score.
  3. Maintain low balances on your credit lines and decrease debt. Borrowers who owe smaller amounts on credit accounts are viewed as having lower repayment risk. Meanwhile, existing debt accounts for 30% of your FICO score, therefore consolidating and decreasing your recurring debts will improve your score.
  4. Consult with a mortgage lending professional. The Certified Mortgage Planning Specialists (CMPS) at Apex Home Loans will take into consideration your entire financial picture. They'll help you create and execute a targeted plan for improving your credit in order to get you the best home financing possible.

Related Resources:

Download Our Guide to Understanding Your Credit.
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