On The Money

What’s a Credit Score and Why Does It Matter When Applying For a Mortgage Loan?

Mortgage LoanIf you’re thinking of getting a mortgage for your new home, you’ve probably heard the phrase credit score. But what does it mean?

A credit score is the number gotten after your credit history has been reviewed. A lot of people don’t understand that their credit score is one of their priceless assets. Altius Mortgage Group recommends getting your credit report before you apply for a loan. Your credit score could determine if you should continue renting or you’re able to purchase a home with a mortgage.

How does your credit score affect your mortgage rates?

Most lenders use it to determine the amount they’ll offer you and the interest rate you’ll be required to pay. If you have a score of over 760, lenders consider you a low-risk client. They’ll offer you the best interest rates on the market.

However, if your score is under 620, lenders refer to you as a high-risk client. It might be difficult to secure a mortgage. If you do, you’ll have to pay higher interest rates than a person with a good credit score. U.S. News reports, however, that the government backs high-risk subprime lending.

What do lenders look for?

Before a lender approves and offers you a loan, they will look at your history of on-time payments, what your balances are, and how you utilize your credit. When evaluating your credit report, lenders look at any outstanding debt, the length of your credit history, the number of inquiries on your report, and if you’re pursuing any new credit.

Can you still clean up your score before applying for a mortgage?

The answer is yes. Improve your credit score by repaying any previous loans and credit cards. The company myFICO breaks down how your credit score is computed. You can also check for any errors on your credit report and have these rectified before applying for a home loan.

Know if you’re eligible for a home loan. Determine your score and get advice on which home loan would best suit your present needs.