Your credit will play a big part of your mortgage and home buying journey. Make sure your score is setting you up for success.
Because your credit score reflects your likelihood to repay your loan, it also influences the mortgage options you have, the interest rates you qualify for and the requirements you’ll need to meet to be approved for your loan. Want to learn more about how your credit will impact your Louisiana homebuying journey? Use the resources below or contact the Essential Mortgage team for help.
The history you have using credit is scored on a scale of 300 to 850, with 850 being the highest possible score you can achieve. The score reflects a number of factors, including your payment history, the number of credit inquiries you’ve had and more. Each of these factors carries a different weight and can influence your score in real-time.
Let’s break each of the factors down in more depth:
This refers to how reliable you are in making your payments. Posting regular, on-time payments to your credit cards, car loans and other accounts will impact your score in a positive manner, while late payments, overdue accounts and collections attempts will hurt it negatively. If these late and overdue payments are recent, it can impact your score even more.
This isn’t just how much you have on your credit cards and loans, but how high those balances are in relation to the total line of credit you have on the account. Having $1,000 on a $15,000-limit credit card will have minimal impact on your credit score. If you have a $1,000 balance on a $1,200-limit card, though? That can hurt your score significantly. You want to utilize only a small fraction of the total credit you have available to you.
This one refers to how long you’ve had credit and how long you’ve maintained your current accounts, cards and loans. A long history of on-time payments will have a bigger impact on your score than a short history (even if you’ve never missed a payment).
There are two types of accounts you can have: revolving (the amount you owe changes monthly) or installment (your payment stays the same). Your activity surrounding revolving debt have a bigger impact on your score than those for installment accounts, as they’re generally a better indicator of your financial habits.
Credit inquiries occur when a creditor (mortgage lender, bank, credit card company, etc.) pulls your credit file. These can be “hard” inquiries, meaning the creditor accessed your entire credit report, or “soft” inquiries, which are generally done during prequalification or when you pull your own credit. Only hard inquiries influence your score, and the more of them you have, the bigger the negative impact will be.
Mortgage lenders (Essential Mortgage included) will pull your credit score from all three credit bureaus — Experian, TransUnion and Equifax. Because each of these bureaus using a different scoring system, your scores will be slightly different with each one. In most cases, your lending company will use the middle score as the one most representative of your credit and financial habits. If you’re applying with a co-buyer, they’ll use the lowest of these two middle scores to evaluate your application.
Credit scores are dynamic. Anytime one of the above items changes, your credit score will change, too. So, if your score isn’t great, consider working on your bill-paying habits, lowering your balances and avoiding new credit accounts. You should see a boost in score within months.
Are you curious how your credit will impact your Louisiana mortgage process? Just want to learn more or discuss your options? The Essential Mortgage team is here to help. Reach out today for personalized advice or to get prequalified.