What's The Score? How Credit Scores Affect Your Lending Bottom Line

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The three numbers that make up your credit score play a surprisingly big role in the home-buying process. Since most buyers need lending to make their dream home a reality, paying close attention to all things credit is time well spent. Read on to learn more about how your score influences so much about your quest to buy a new home.

How Do I Know What Score is Needed?

With mortgage lending, it's difficult to pin a specific credit score down, at least for conventional lenders. The reason for being so vague has to do with the fluctuating lending market in general and with other applicant factors that are taken into consideration. It would be unfair to allow applicants to believe that all they need to be approved for a mortgage is to have a score of 750, for example. That being said, most conventional lenders like to see applicants in a mid-600 range and above, if possible.

For government-backed loans, the score requirements are a bit more transparent. Residential loans offered by the Veteran's Administration (VA), the Federal Housing Administration (FHA), and the US Department of Agriculture are known to focus their marketing to those with scores as low as the 500s.

Why High Scores are Better

Not only can applicants be disqualified before they've begun if the score is too low, the higher the score the lower the interest rate might be. Scoring a loan with an interest rate that is a mere percentage point lower can result in savings of thousands of dollars on the total cost of the loan. Moreover, you have more buying power with a higher score because the interest affects your monthly payment – that's because the debt to income ratio (DTI) plays a huge part in the underwriting process. Finally, having a higher score usually goes hand-in-hand with a history of making good credit decisions. Lenders view credit reports and look at your total debt load, timeliness of payments, length of credit history, and more.

Tips to Improve Your Score for Mortgage Approval

1. You might need to wait several months to a year or more toward this goal, so make sure you give things times to happen before you apply.
2. Don't be late with credit card and other payments, those black marks stay on your report for a very long time.
3. Pay down your debts before applying. Known as debt utilization, it's a huge factor in your score.
4. Review your report for errors and follow the process to have them corrected by contacting each of the three credit reporting agencies.

To learn more, speak to a lender.

18 May 2019