- Your credit score is one of the most important factors in mortgage qualification and pricing
- Credit scores are calculated based on payment history, amounts owed, length of credit history, new credit, and credit mix
- Paying down revolving balances and maintaining on-time payments are among the most impactful positive factors
- Errors on your credit report can be disputed with the credit bureaus at no cost
- Credit improvement takes time; results vary based on individual credit profiles
Your credit score plays a significant role in the mortgage process. It is used by lenders to assess creditworthiness and can affect both your ability to qualify for a loan and the terms you are offered. This article provides general educational information about how credit scores work and the types of factors that influence them. It is not credit repair advice, and First Colony Mortgage is not a credit repair company.
How Credit Scores Work
The most widely used credit scoring model in mortgage lending is the FICO® score, which ranges from 300 to 850. Higher scores generally indicate lower credit risk. Lenders use scores from all three major credit bureaus — Equifax, Experian, and TransUnion — and in most mortgage transactions, the middle score of the three is used for qualification purposes.
Different loan programs have different minimum score requirements. Borrowers with higher scores typically have access to a broader range of loan programs. The specific score required for any given loan depends on the loan type, lender guidelines, and other factors in the borrower’s profile. Dustin can review your credit profile and explain what options may be available to you.
Key Factors That Affect Your Score
FICO scores are calculated using five main categories of information from your credit report. Understanding these categories can help you understand what drives your score up or down.
| Factor | What It Measures |
|---|---|
| Payment History | Whether you have paid past credit accounts on time. Late or missed payments have a negative impact. |
| Amounts Owed | How much of your available revolving credit you are using (credit utilization). Lower utilization is generally better. |
| Length of Credit History | How long your accounts have been open. Longer history is generally favorable. |
| New Credit | Recent applications for new credit. Multiple hard inquiries in a short period can have a temporary negative effect. |
| Credit Mix | The variety of credit types you have (revolving accounts, installment loans, etc.). |
Positive Credit Habits
Certain financial behaviors are generally associated with positive credit outcomes over time. These include making all payments on or before their due dates, keeping revolving account balances well below their credit limits, maintaining older accounts rather than closing them, and limiting applications for new credit in the period leading up to a mortgage application.
It is also worth reviewing your credit reports regularly. You are entitled to a free copy of your credit report from each of the three major bureaus annually through AnnualCreditReport.com. Reviewing your reports allows you to verify that the information being reported is accurate.
What to Avoid
Certain actions can have a negative effect on your credit score, particularly in the months before applying for a mortgage. Opening new credit accounts increases your total debt obligations and generates hard inquiries. Closing old accounts can reduce your available credit and shorten your average account age. Missing payments, even on accounts you plan to pay off, can have a lasting negative impact on your payment history.
Co-signing on another person’s loan also adds that debt to your credit profile, which can affect your debt-to-income ratio and credit utilization.
Disputing Credit Report Errors
Errors on credit reports are not uncommon and can affect your score. If you find information on your credit report that you believe is inaccurate — such as accounts that do not belong to you, incorrect payment history, or outdated information — you have the right to dispute it with the credit bureau reporting the error. The Fair Credit Reporting Act (FCRA) requires bureaus to investigate disputes, typically within 30 days. Disputes can be filed directly with each bureau at no cost.
The Consumer Financial Protection Bureau (CFPB) provides guidance on how to dispute credit report errors at consumerfinance.gov.
Frequently Asked Questions
Questions About Your Credit Profile?
Dustin Carlson can review your credit report as part of the pre-qualification process and explain how your credit profile relates to your mortgage options. First Colony Mortgage is not a credit repair company and does not provide credit repair services.
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