There’s no doubt about it, your credit score will impact your ability to qualify for the lowest interest mortgage — and if your score is particularly low, it could prevent you from qualifying for a mortgage altogether. There’s a lot of mystery around credit scores, how they are calculated, and what they can mean for a prospective home shopper.

First you should understand that there is no singular credit score that defines you. That means that the credit score you get from an online site that provides free credit reports to consumers once a year, is probably not the FICO score your lender is using to determine what type of loan they will ultimately offer.

Generally speaking, credit scores are a rating of your credit, which includes things like your payment history (aka do you pay your debts on time?), how much debt you have, how long you’ve been using credit, what types of credit you have (credit cards, retail accounts, other mortgage loans, etc.) and your newest credit. A loan underwriter will also take into account your income, amount of money in reserve, your employment history, etc. Essentially the bank needs to feel confident that you can and will repay your loan every month on time.

You should also understand that just like there is no singular credit score that defines you, there is also no singular type of mortgage you are tied to either. It’s important to know the difference between a conventional home loan, an FHA loan, a VA loan, and jumbo loan. All of these loan types require different credit scores and have varied interest and payment options.

Working with a qualified, experienced mortgage broker is imperative to making sure you are getting the best loan option possible based on your credit score. Doug Sheridan, Managing Director of REX Home Loans, has spent three decades working with clients from all different income levels and with all different credit scores.

“You have to work with someone you trust,” said Sheridan. “Every home buyer is unique and understanding how a certain loan will benefit them in both the short and the long term is important. It’s not a one-size-fits-all situation.”

It’s recommended that you check your credit report and score about a year before you plan to start looking to purchase a house. That way, if there are any errors, you can get them corrected, and if your score is low, you can work to bring it up. To bring your credit score up, you shouldn’t open a bunch of new accounts in hopes those will erase any bad ones you have—that tends to lower your score. And for your credit cards, make sure you continue to pay on time and use no more than 30 percent of your available credit (10 percent is ideal). That might mean requesting an increase in credit limit. You can also contact any lenders where you were late on payments and see if they are willing to take your tardiness off the report or agree to remove your lack of payment if you pay the remaining debt off in one lump sum.

Make sure to speak with a REX Home Loans representative to learn about all of your options.

posted by Eric Rothman

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