Credit Score

Want the Best Mortgage Terms? Watch Your Credit Score.

Your credit scores are not the only factor that will impact your mortgage options, but are the one that is most important. Your credit scores determine the access to various mortgage options, and they may influence down payment requirements and private mortgage insurance costs as well as the interest rate that is available to you. Lastly, they may influence the documentation requirements.

Your overall credit health is scored on a scale of 300 to 850, with each major credit bureau (Experian, Equifax, and TransUnion) reporting their proprietary score that is unique to each bureau. Based on research, they are one of the most reliable factors for establishing and predicting mortgage risk.

How Your Score Is Calculated

Credit scores are simply a multiple regression analysis. Each bureau’s model contains variables such as repayment history, length of accounts, revolving debt limits compared to balances, and even the number of recent credit inquiries, to name a few. The reason for a variance in credit scores among the bureaus is because the variables are weighted differently. The result is a mathematical calculation referred to as a credit score.

Some of the factors that influence your credit score include:

• Payment History.
  Late payments and the recency of when they are reported.
• Balances.
  Revolving debt balances relative to an account’s limit. As balances increase, it creates a negative impact on credit scores.
• Credit History.
  The longer a creditor’s history can be measured, the more reliable the history in predicting default risk.
• Credit Type.
  Many credit-scoring models are looking for a mix of both revolving accounts such as credit cards and installment accounts such as mortgages, car loans, and student loans.
• Credit Inquiries.
  An inquiry occurs when a creditor obtains your credit report to access your creditworthiness. Increased credit inquiries typically suggest future increased credit debt and risk.

It is important to understand that there is an interrelationship among the factors described. Determining precisely the reason for a credit score requires the review of a company or person who specializes in credit-related issues.

Every consumer is afforded a free credit report once per year, so it might be wise to obtain a copy of your report well in advance of beginning the mortgage process just to become aware of any surprises.

If you would like more in-depth insights into what may be influencing your credit scores or a strategy to improve them prior to initiating a mortgage application, contact one of our experienced loan officers at Park Cities Mortgage.

Check Your Score

Please use these links to the credit bureaus for additional information:

Equifax

TransUnion

Experian