Do you avoid talking about your finances with a ten-foot pole? It’s time to get comfortable with the topic because it’s important to understand how your credit score, and overall financial status, can affect your home loan application.
There are five components that factor into your credit score. These pieces are:
- Payment history (35%)—This includes the payment information on all of your credit accounts. Lenders look at the timeliness of your payments
- Amounts owed (30%)—The total amount owed on all credit accounts, including individual credit accounts, is added up to determine how much of your total credit line is being used.
- Length of credit history (15%)—Lenders look for how long you have had an established credit history, how long each account has been established, and how long it has been since you have used each account.
- New credit and inquiries (10%)—This is the accumulation of how many recent credit requests you have had. If you apply for a lot of credit in a short period of time, you can risk lowering your credit score.
- Types of credit (10%)—Not all credit is the same. This portion of your credit score includes all of the credit in your name, such as credit cards, car loans, student loan debt, etc.
What is considered a good credit score?
Have you been told you have to have a “good” credit score to get a mortgage? That may be true for some mortgage types. But the truth is there are a whole range of mortgage programs (PrimeLending offers more than 400!) and there are many designed for people with a “less than good” credit score. It’s also true that there are things you can do to improve your credit score. Check out this blog to learn more.
If you’re going by credit reporting agency standards, which most lenders do, your credit score will fall on a scale of 300-800 and will be determined as “fair”, “good”, “very good”, and “excellent. For instance, according to Equifax, credit scores in the 580–669 range are considered fair, a credit score is considered good when it falls between 670 and 739, credit scores considered to be very good are in the 740–799 range, and credit scores 800 and higher are considered excellent.
No matter where your credit score falls on the scale, it is important to remember that this number does not guarantee you a better loan or a lower rate. Your credit score is one of many factors lenders consider as part of your loan application. Working with a lender that can offer more options, like PrimeLending, is what can help you make sure you find the right home loan that works with your credit score and your financial goals.
How long do hard inquiries stay on your credit report?
When you apply for a new line of credit, like a credit card or a mortgage, or finance a new car, it will appear as a hard inquiry on your credit report. Also known as a “hard credit pull,” a hard inquiry can stay on your credit report for two years. However, it may only impact your credit score for one year depending on the type of hard inquiry and your lender. Typically, hard credit checks are completed by a lender or credit provider.
What is a soft credit check?
A soft credit check, or soft inquiry, can be conducted by you or a company as part of an approval process or background check and can happen when you aren’t even applying for credit. Unlike a hard credit inquiry, a soft credit pull does not impact your credit score.
Does checking your credit score lower it?
That’s a myth. Checking your credit score or credit report will not lower your credit score. Regularly checking in on your credit score is actually a good way to make sure that your credit report is accurate.
If you’re wondering what kind of home loans would work with credit score and financial goals, it’s time to talk to a mortgage expert. Your local PrimeLending loan officer is waiting to walk you through all of your options. Find your local home loan expert and start a conversation today!
