You won’t believe how many times we’ve had clients inform us the credit scores we pulled are incorrect. This phenomenon began around the time websites like Credit Karma started popping up. Before coming in for pre-approval, our clients would pull their scores from a website and take it at face value. Don’t get us wrong, that credit score is correct, it just isn’t a credit scoring model that is allowed by the secondary market to determine your eligibility for a loan.
There are hundreds of types of credit scores, all using different scoring models. However, the following scoring models are the ones most commonly used by mortgage lenders to assess your creditworthiness: Equifax Beacon® 5.0; Experian®/Fair Isaac Risk Model V2; TransUnion FICO® Risk Score, Classic 04.
So, how are you supposed to find out your credit score? By simply scheduling an appointment with us and providing a little bit of information, we can present your credit scores and discuss how they affect your mortgage.
What Factors Into Your Credit Score
When we meet with clients, we always end up discussing what factors into credit scores, but we’ll let you in on that secret now. Listed below is everything that factors into your credit score, in order of greatest to least impact.
- Payment history – This is used to determine how likely you are to repay a loan. Did you know that a late payment can impact your score for seven years?
- Age and type of credit – A mix between credit cards and loans over time is best for your score.
- Credit utilization – We recommend that you never let your balance exceed 30% of your credit limit.
- Total balances – This includes all of your current and delinquent debt.
- Recent behavior – Your recent behavior includes all of your recently opened accounts and the amount of hard inquiries placed on your file.
- Available credit at your disposal
Smart Credit Scores Tip
Did you know that you’re able to pull a free annual credit report from each of the major credit-reporting bureaus, Equifax, TransUnion, and Experian? While these reports do not contain your actual credit score, they give you a detailed look at everything affecting your credit score.
These reports can be pretty long due to the amount of information included. It’s a great idea to pull these reports yearly and comb through for any mistakes that could harm your credit.
Credit scores are incredibly important and can affect your life, and mortgage, in many ways. As a general rule, we usually advise first-time homebuyers with a score below 700 to opt for an FHA loan. For buyers with a score above 700, we generally recommend a conventional loan.
Mortgages vary greatly by the person. We urge people looking to buy in the next 6 months to a year to get pre-approved now. By doing so, we’re able to help set expectations and even advise on how to qualify for a better loan. To begin the pre-approval process today, fill out our online application!