Buying a Home? Why Knowing Your Credit Score Matters

Your Credit Score & Why It Matters

Credit scores are important numbers derived from information found in your credit report. Your credit report and score shows lenders your credit history and helps them predict whether or not you will make future credit payments on time. These payments could be for a credit card, mortgage, auto loan or any other type of credit.

Why are credit scores important when applying for a mortgage? Your credit score is a major factor in the type of home loan you can qualify for. Lenders, like Summit Mortgage Corporation, will look at your credit score to help determine what kind of home loan will be the best solution for your financial situation.

The general rule for mortgages is the higher your credit score, the lower the interest rate on a mortgage. Borrowers with high credit scores tend to get lower interest rates on mortgages than borrowers with low credit scores. For example:

A credit score of 740 or higher qualifies for the best interest rates from most lenders.It is difficult, but possible, to get a mortgage with a credit score under 620.

Having a good credit score is important, but it’s not the only criteria that lenders will look at.

Credit Score vs. Credit Report

Your credit score is different from your credit report. A credit report is a full detailed report of your credit history. This will include personal information like current and previous addresses and a summary of all credit accounts. Your credit score is calculated by taking into consideration all of the information that is compiled in the report. There are many ways to access both your credit report and credit score. It’s important to note that some credit reporting agencies may only provide a report and exclude your score, and some will charge a fee for the information.

Ways to Get Your Credit Score or Report

What do you do if you have bad credit? Or, haven’t seen your credit report recently? First, find out where you stand! We’ve compiled a list of ways to access these different types of information and their costs, if any.

CREDIT CARD OR LOAN STATEMENT Most major credit card companies and some auto loan companies provide credit scores on a monthly basis. You can typically find this information on a mailed statement or by logging in to your account online. If you’re unsure as to whether or not your bank has this service, contact them directly.

ANNUAL CREDIT REPORT SERVICE* The Fair Credit Reporting Act requires the three credit reporting bureaus (Experian, Equifax, TransUnion) to provide consumers with one free credit report per year. You can request a free credit report at AnnualCreditReport.com. This report will not include your credit score. You can choose to pay between $6-8 to see your credit score, see the Annual Credit Report Service website for more information.

CREDIT SCORE SERVICE** There are many different websites, like CreditKarma.com or CreditSesame.com, that provide free credit scores and reporting. Make sure that you are not trying to get a credit report or score from any website that requires you to enter your credit card information – unless you want to pay for the report.

NON-PROFIT CREDIT COUNSELOR Speak with a non-profit credit counselor or HUD-approved housing counselor. They can often provide you with a free credit report and score, as well as help you understand the information reported. Summit Mortgage Corporation regularly works with the following non-profit credit counselors:

OPEN DOOR COUNSELING CENTER (OR): The Open Door Counseling Center employs certified housing counselors who help clients become mortgage-ready through education and counseling. They educate home buyers on credit reports, budgeting, setting goals, and creating a workable spending plan. They also cover applicable down payment and closing cost assistance programs at no charge.

CREDIT REPORTING COMPANIES*** You can purchase your credit score directly from any of the following major credit reporting companies: EQUIFAX, EXPERIAN, TRANSUNION

Clean Up Time

If you’ve cleared up any errors, but still have a few outstanding and legitimate derogatory items on your report, what’s the next step? Clean up! Identify any derogatory accounts with balances and set up a plan to pay them off. Clearing up debt can take time, which makes it even more important to get started as soon as possible. Remember that time is on your side. Consistent payments, no matter how small (so long as they meet the minimum), prove that you are responsible enough to repay your loans as promised. Over time they will outweigh the negative points on your credit report.

In order to avoid any unwanted surprises, check your credit information regularly, especially 60 to 90 days before a major purchase (like for a car or home). Make sure to stick with having a few lines of credit, never more than what you could afford to pay off, and with none of them maxed out. Cancel old cards that you never use, but be careful not to max out one giant line of credit with your entire debt. The relation between your debt and the credit limit can affect your score.

Navigating through credit reports and home loan applications can seem daunting. With the right professional help and guidance, it can be a rewarding experience.

*Be aware that many sites advertise free credit reports. AnnualCreditReport.com is the only official site that is directed by Federal law to provide reports.

**Always be sure to double check the URL that you’ve typed into your browser and avoid any unsolicited links and attachments.

***Prices for credit scores range from $15.95 to $39.95. Subject to change.