In reviewing applications for a loan, there are two things lenders will consider: your ability to repay a loan and your willingness to repay a loan. Your ability to pay the loan is most easily determined by looking at income and the total amount of monthly obligations while taking into account the new debt. However, to assess your willingness to repay the loan, they will look at your history of repaying debts, which is represented by your credit report.
Credit Score Range
Credit scores, also sometimes called FICO scores, are named after the company that developed them, Fair Isaac & Company, Inc. Credit scores range from 350 to 850. Higher credit scores help to qualify for better rates and programs. While low credit scores limit the programs borrowers qualify for, there are still other options available to them.
Credit Score Factors
Many factors figure into the credit score and each is weighted differently. In order of level of importance they are:
- Your payment history (weighted 35%)
- Your current level of indebtedness (30%)
- The amount of time your credit has been in use (15%)
- The type of credit available to you (revolving credit, car loans, etc.) (15%)
- The number of inquiries into your credit (times you have sought credit) (5%)
Poor payment history, as well as debt, weigh heavily on credit scores. Late payments will have a more significant effect on your score than credit inquiries. However, numerous credit inquiries can negatively impact credit scores. A few points can make a big difference in qualifying for particular programs.
Credit Score and Qualifying for a Mortgage
Credit scores not only help lenders determine whether or not you qualify for a mortgage, but what type of mortgage you qualify for. Credit scores also affect interest rates. Typically, the higher the credit score, the lower the interest rate.
You may have heard people say that don’t have a credit score. While this is not typical, it can happen. To ensure that there is adequate information to generate a credit score, you should have at least one account that has been open for at least six months and one that has been updated in the past six months. Some lenders will lend to borrowers with no credit score, but other factors will be given greater consideration.
Related: Homebuyers with Excellent Credit Scores Save Thousands of Dollars on Their Mortgage
Marimark Mortgage is based in Tampa, Florida, and serves the mortgage needs of homebuyers, homeowners, and investors in Florida, Virginia, and Pennsylvania.
We specialize in mortgages for first-time homebuyers, conventional home mortgages, refinance loans, reverse mortgages, and FHA, VA, and USDA mortgage options.
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