Nearly 65% of homeowners own a home through obtaining a mortgage. Are you ready to purchase a new home? Before you buy your first home, you need to understand how your credit score can affect your ability to qualify for home loans. Your credit score will be used to help you get good mortgage rates and mortgage options from top mortgage lenders.

Do You Know What a Credit Score Is?

A credit score is used to predict how well you will pay back a loan in a timely manner. The scoring model uses information from a report called a credit report that help to create your credit score. A mathematical formula, known as a scoring model, is used to generate credit scores. There are certain factors used that typically make up a credit score including current unpaid debt, your bill-paying history, how long you have had a loan account open, the type and number of loan accounts you have, new applications for credit, how much available credit you are currently using, whether or not your debt has been sent to collection, bankruptcy or foreclosure companies and how long ago it was sent.

Many companies use your credit score to decide whether they should offer you a credit card, mortgage, auto loan or any other type of credit product. It is also used to determine interest rates on loans and credit limits. It is important to understand that you do not just a single credit score. There are many credit scores available to lenders and they all differ per the data that was used to calculate the score. They differ depending on the scoring model used, the type of loan, the source of credit history and even differ depending on the day the score was calculated. Higher scores make it much easier to qualify for better interest rates with most credit scores ranging from 300 to 850.

How Does a Credit Score Affect Your Ability to Get a Mortgage Loan?

The information taken from a credit report is used to determine whether you are eligible to get a mortgage and at what rate you will pay. When your score is higher, you are typically offered a lower interest rate for a mortgage loan. Most mortgage lenders use your FICO scores. A credit score can also differ depending on the credit reporting agency that’s used. Major credit reporting agencies include Experian, Equifax and TransUnion. Three scores are collected and the middle score is the one that is used when deciding which rate to offer.

Do You Have Any Errors on Your Credit Report?

You could have an error on your credit report which could reduce your score artificially. This usually means that you could be charged higher interest rates and spend more money. It is always a good idea to review credit reports so any errors can be collected before you apply for a mortgage loan. A credit score is only one factor when it comes to a mortgage lender deciding whether to give you a loan or not, but it still remains an important one. Other factors tend to include your credit history with a particular lender, how much you have in savings, the amount of debt you currently carry, your total amount of assets as well as your current income.