Credit scores are a critical part of the preapproval process. They not only determine your eligibility for home financing, but they can also influence the interest rate for which you will qualify. This is because your credit score establishes how much of a risk is involved in lending money to you.
Lenders use the median score from the three national credit bureaus, TransUnion, Experian and Equifax. This number is known as a FICO® score and can range from 300 to 850. The lower the score of a borrower, the higher the risk it is to lend money to that borrower.
A minimum score of 620 is required by all mortgage loans delivered to Fannie Mae, but individual financial institutions may have a higher credit score requirement depending on the loan type and program. If your scores are below the minimums, there is still hope for homeownership. Something that can help is to improve your credit score by, for instance, consistently making on-time payments and keeping balances low—and up to date—on revolving lines of credit (such as credit cards). Click here to discover additional ways to improve your credit score.
Knowing and understanding your credit score is of utmost importance in managing your finances. Any time you apply for financing or a source of credit, the business or financial institution to which you are applying is entitled to “pull” your credit. That is, they will request a copy of your detailed credit report. Whenever that happens, be certain to request that the business or financial institution with whom you are making application gives you a copy of your scores for an up to the minute status of your credit score.
If you want to know how your credit ranks with regard home financing, contact one of our Compass Mortgage loan officers. For more information on buying a home, please refer to our handbook, Mortgage 101, a go-to for anyone thinking of buying their first home.