Credit can be one of the most confusing parts of the home loan process. When first beginning the process, you will hear your home loan team bring up credit on multiple occasions. But why is it so important and what does it mean? Let us take you through the credit basics!
What is a credit score? A credit score is a numeric representation of your history of paying on obligations, i.e. bills, loans, etc. Using credit can help you leverage yourself and build credit. But, by taking on credit, you run the risk of paying more, losing track of what you are paying and it isn’t a tangible source.
How is a credit score related to mortgages? One of the most important factors when determining your mortgage rate is your credit score. The majority of home loan programs have a minimum credit score that a borrower must meet to get the loan.
What does my credit impact? Credit can affect your ability to get an installment loan, get car insurance, find employment, buy or rent a home, and more.
How is my credit measured? A credit score can range anywhere between 300 and 850. Your credit score is comprised of 5 different categories: payment history, debt utilization, length of credit history, new credit, and types of credit.
What affects my credit score? The following can affect your credit score, either positively or negatively: credit cards, loans, lines of credit, mortgage, auto loans. The following can affect your credit negatively: collections accounts, payday loans, and auto title loans.
Is there anything that doesn’t affect my credit score? Yes, your bank accounts, utilities and cell phone bills do not affect your credit score.
What are some quick tips to improve my credit? Start by paying all bills on time, focusing on your credit card debts first. Write down any and all collections and keep them in a safe place for future reference. Figure out your current credit score.
Have more credit questions? Your local Summit Funding Loan Officer can be a great resource for credit guidance. Get started here.