Financing Your First Business

Applying For A Mortgage? 4 Things You Need To Understand About Your Credit Score

12 May 2019

Jimmie Holland

When you apply for a mortgage, your credit score plays a large role in your ability to secure a mortgage and to secure a mortgage with favorable loan terms. If you want to apply for a mortgage this year, you need to understand how your credit score works so that you can utilize your credit score to your advantage.

#1 Three Companies Produce Your Credit Score

Three different companies produce a credit score for you. These three companies are the three major credit bureaus that dominate the credit landscape; Transunion, Equifax, and Experian. Each credit bureau produces an independent credit score for you, and there are often differences between the number each credit bureau produces. Usually the differences are not that significant; however, they can be.

#2 You Can Get a Free Credit Report

Due to the federal Fair Credit Reporting Act (FCRA) each credit bureau is now required to give you a free credit report. You are entitled to a credit report for free directly from each agency at least once a year. There are also a variety of different organizations, including many banks and credit unions, that will provide you with a free credit report throughout the year upon request. You should not have a problem finding out what your credit scores are.

#3 Five Different Factors Contribute to Your Credit Score

Each agency collects information in five different categories and then uses that information to create your credit score. First, they look at your repayment history, which is basically your history of paying your bills on time. Second, they look at your credit utilization and make sure you are not maxing out your available credit. Third, they look at your history of taking out credit. They judge if you have taken out too much or too little credit. Then, they look at the type of credit that you have taken out. It is generally better to have a mix of credit types, such as credit cards and loans. Finally, they look at how often inquiries are made about your credit score. Too many inquiries can spell trouble for your credit score.

#4 Credit Scores Are Always Changing

Credit scores are extremely flexible. They can potentially change on a day-to-day basis. Whenever the credit agency gets new information, your score can change. If you miss a payment, as soon as it is reported to the credit agency, your score can change. If your balance goes up or down on a credit card, your score can change. Credit scores are very flexible and fluid.

Make sure you know and understand your credit score before you apply for a mortgage, as a credit score can impact the type of mortgage you end up with and what you end up paying for the home you purchase. Seeking assistance from a mortgage rates service company can be a good idea.

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