Your credit score is extremely important when it comes to applying for any type of loan or credit account, especially when you’re looking to purchase a home. Not only does your credit affect the total amount of a loan you may qualify for, but it also helps mortgage lenders determine a mortgage rate they’re willing to offer you on a loan. Although your credit score is only a mere piece of the pie that lenders consider, it does make quite an impact when qualifying for a mortgage. It is important to know your credit score and understand what impacts it has on your chances and factors (such as loan type and mortgage rate) of getting approved for a loan.
What Can A Mortgage Lender See With Your Credit Score?
Lenders have no idea what kind of borrower you are and would never lend money to a complete stranger. That’s why mortgage lenders need to pull your credit report. Your credit report gives lenders a peek into your past habits.
Your credit score shows lenders:
- If your bills have been paid on time and if any of your accounts have been sent to a collection agency.
- If you have declared bankruptcy.
- If you have applied for new credit recently.
- The is diversity in the types of accounts you have (installment loans, credit cards, etc.).
- How long you have had credit.
Why is That Important to a Mortgage Lender?
Your credit history helps mortgage lenders evaluate your ability to live up to your end of the deal. High credit scores show a lender that this person is good on meeting their obligations. Assuming all other factors in determining mortgage terms are positive as well, a high credit score will allow lenders to increase the loan amount and have the ability to offer a more favorable mortgage rate, which can lead to significant savings over the life of your mortgage.