As a local mortgage lender, we receive questions every day from clients, friends and neighbors about, well, mortgages. While these questions can vary, most people eventually ask about how to qualify for a mortgage and mortgage interest rates.
Even though each borrower’s situation is unique, in many cases a major determining factor for qualification and payment is credit score.
Did you know there are 5 basic factors that contribute to your final credit score? Understanding these factors is the first step to reaching your mortgage credit score goals.
1. Payment History (35%)
The largest portion of a mortgage credit score, payment history is the easiest for consumers to control. For potential borrowers looking to improve their mortgage credit score and thus, their mortgage interest rate; making on-time payments every month goes a long way to improving credit.
2. Outstanding Balances (30%)
Another heavyweight in the mortgage credit score, maintaining lower balances go a long way (sometimes quickly) to improve a credit score. If you’re using more than 30% of your available credit pay down the debt, if you’re able. You’ll see a noticeable difference to your mortgage credit score in no time.
3. Length of Credit History (15%)
The longer your credit lines have been open – the better. Longstanding credit with a solid payment history shows ability to pay and manage debts. No need to invent a time machine if you don’t have a long credit history. Just focus on the pieces you CAN control, and time will help raise your mortgage credit score.
4. Types of Credit (15%)
Mix it up! A diverse mix of credit cards, retail accounts and mortgage loans is the best recipe for a healthy credit score.
5. New Credit (10%)
Opening several new credit accounts in a short period of time represents greater risk, especially for people who don’t have a long credit history. Don’t be a walking red flag; spread out new accounts if you can, especially if you’re looking to get qualified for a mortgage soon.
There are many additional factors to qualifying for a mortgage besides credit score. But diligence and care with a credit score can save you thousands of dollars of interest during the life of a mortgage loan. And that makes it well worth the effort!
Have any questions about mortgage interest rates or qualifying for a loan?
Just head over to our Loan Officers page to find one licensed in your state!
Disclaimer: This is intended for informational purposes only, and in no way constitutes legal advice or credit counseling. All loans are subject to underwriting by a Peoples Mortgage Underwriter. Call for program information and to check rates and eligibility. 6/5/20