Does Your Credit Score Give You the Best Mortgage Options?

It’s easy to focus on one question before buying a home: “What credit score do I need?” I’d rather help you ask a more useful one: “What does my credit profile mean for the mortgage options available to me?” Your score matters, but so do the rest of your finances and the type of loan you’re considering. Once you understand how those pieces fit together, you can make thoughtful decisions about whether anything needs attention before you apply.

Credit scores are based on information contained in your credit reports. Although different scoring models evaluate that information differently, important factors can include:

  • Whether you’ve made payments on time
  • How much revolving credit you’re using
  • How long your credit accounts have been established
  • The types of credit in your history
  • Recent applications or inquiries for credit
  • Collections, charge-offs, or other negative information

BUILDING CREDIT TAKES TIME
If you’re establishing credit for the first time, there are different ways a credit history can develop. A secured credit card may be appropriate for some people. Being added as an authorized user to an established account may affect your history if that account is reported, although the results aren’t guaranteed and the account holder’s activity matters too.

What I don’t want you to do is start opening accounts simply because someone told you it would raise your score. Consistent, responsible use of credit over time is more important than trying to manufacture a quick result.

WHICH SCORE MATTERS?
You may see one score on a credit card account, another through a consumer service, and different scores when a mortgage lender pulls your credit. That doesn’t necessarily mean anything is wrong.

Different scoring models and mortgage programs use credit information in different ways. The rules can also change when more than one borrower applies. Instead of trying to predict which number matters most, let the lender show you which score applies to the loan you’re considering and what it means for your options.

DON’T LET ONE NUMBER DECIDE FOR YOU
There isn’t one universal mortgage credit-score cutoff. Different loan programs have different requirements, and lenders can have additional standards of their own. VA, for example, doesn’t establish a minimum credit score for its home loan guaranty, although individual lenders may.

A higher score may improve the financing available in some situations, but I don’t want you assuming you’re ready — or not ready — based on a number you’ve seen online. Let’s find out what your actual credit profile means for you.

IF SOMETHING NEEDS IMPROVEMENT, LET’S KNOW WHAT WE’RE TRYING TO IMPROVE
Start by reviewing your credit reports for accuracy. You can obtain them through AnnualCreditReport.com. Continue paying obligations on time and keep an eye on revolving balances.

But if a home purchase is on the horizon, talk with a mortgage professional before opening or closing accounts, taking out a new loan, transferring balances, or making a major purchase. I would much rather have you make one informed change for a specific reason than five changes because they sounded like good ideas.

Credit is only one part of the mortgage picture. Your income, debts, assets, down payment, loan program, and the property itself can all affect your financing.

You can read more about ways to improve your credit score from NerdWallet. If you’re thinking about buying, I can also introduce you to knowledgeable mortgage professionals who can review your situation and explain what, if anything, would be worth improving before you apply. You don’t need to figure out the path first. I’ll help you find your way through it.