As you begin your journey toward homeownership, attention will eventually turn towards your credit score. Why? When you’re applying for a mortgage loan, one of the most important criteria is this almighty score, as it determines how much the bank will lend you and at what percentage rate.
What Is a Credit Score?
Your credit score is a number derived from all of the factors in your credit history. It’s a snapshot of your credit standing at that point in time. It’s always fluid and changing, and is based on your credit activity.
Why Does It Matter?
Banks want to know if you’re a good risk, meaning they want to know that you’ll repay the money you borrow. The way they do this is by looking at your credit history. Every time you apply for and take out credit (whether it’s a credit card, retail line of credit, or car loan)— a complete record of how much you borrowed, how much your payments are, your credit limit, and whether or not you made your payments on time is created. If you’ve filed bankruptcy or have been party to any collection actions, there’s no hiding. Those will show up on your credit history.
What You Need to Know
There are some things you should know about your credit score:
- Payment history is the most important credit score component. It accounts for 35 percent of your score. If a lender knows you make your payments, you’re a better risk.
- Applying for too much credit can hurt you. However, your credit score shouldn’t be affected if you are shopping around for the best rate for a single transaction in a set amount of time. For example, spending a month looking for the best interest rate for a mortgage loan will be considered a single transaction.
- Married couples have individual scores. If you have a stellar credit history and apply for a loan with your new spouse, be sure you know their financial history. The lender will consider both scores. So, even if you’ve kept your credit in tip-top shape, a few financial indiscretions in your partner’s past could ruin your chances for a loan, or raise your interest rate if the bank does approve you for a loan.
- You can check on your credit report as often as you want without it hurting your score. If you like to check your credit month to month, don’t worry—your score won’t be negatively impacted. Credit checks are factored in when a lender or company pulls your credit report after you apply for a loan.
If you have questions about how to access your credit score or how it relates to applying for a mortgage loan, contact a professional today. They’ll help you identify where you stand and what next steps are for your particular situation.