You probably know that your credit score is important when buying a home. But how does your credit score impact your home loan process? The better your credit score is, the better terms and rates you will get for your home loan. This will save you money over the length of your mortgage.
At Penn Street Mortgage, we are here to give you the information you need to make the best mortgage decisions for your personal situation. We are your trusted Philadelphia mortgage broker.
Understanding the relationship between your credit score, mortgage rate, and loan approval will help you get on the right path to the best interest rate available.
Understanding Your Credit Score
Your credit score is a number that shows how financially responsible you are. Previous borrowing history produces this number. Your credit score is a three-digit number that ranges from 300 to 850 and is reflective of your credit history. Your credit history accounts for different metrics, such as time payments, credit utilization, length of credit history, and types of credit accounts.
Your credit score plays a major role in borrowing money, getting a mortgage loan or obtaining credit. Philadelphia mortgage lenders rely on your credit score to determine how likely you are to repay your loan and calculate your interest rate and terms of the loan offers. A good credit score can help you access better loan terms and lower interest rates, resulting in significant savings over time.
If you want to maintain a good credit score, you should make sure to pay your credit accounts on time, keep your credit utilization ratio low, avoid opening too many credit accounts, and maintain a long credit history. By having a good credit score, you will be able to take advantage of better loan terms, enjoy greater financial freedom, and achieve your financial goals.
How do credit scores impact your mortgage approval?
When talking about homeownership, it’s hard to ignore the impact your credit score has on your overall mortgage approval and terms. Why do lenders weigh your credit score with such importance? It boils down to risk assessment. Your credit score signals how responsibly you’ve managed past credit.
While requirements vary based on the type of home loan you plan to get, specific requirements are set for different types of mortgages, such as conventional, FHA, and VA loans. Lenders view a high credit score as an indicator of financial responsibility, making them more inclined to view the borrower as trustworthy.
On the other hand, a lower credit score might make lenders a bit more cautious and therefore, you won’t be able to unlock the most competitive interest rates. Your chances of approval will not change if you have a low credit score — but it could mean paying higher interest rates or having to pay more in down payments. You can see how your down payment amount can impact your monthly payments by exploring our mortgage calculator.
Our Philadelphia mortgage company is here to help give you the financial guidance and advice you need to get your credit score in the right place for your home purchase. We can get you pre-approved, so you have a clear understanding of what you’re eligible for based on your current credit score and outline how your loan terms might change with a better credit score.
Building and Maintaining a Strong Credit Score
Knowledge is power for getting the best credit score you can. Once you have the knowledge, you can take the steps to improve it and ensure it stays strong.
Here are some simple strategies you can use to build and maintain a good credit score:
- Timely Payments: One of the most effective ways to improve your credit score is by paying your bills on time every month. Late payments can have a negative impact on your credit score, making it more difficult to obtain credit in the future. Get into the habit of paying your bills on time consistently to show that you are a responsible borrower to banks and other lenders!
- Debt Management: Keep your credit card balances well below your credit limits. Aim for a credit utilization rate of 30% or less. This means that you should only use 30% or less of your available credit. This will help to keep your credit score healthy and give you greater financial flexibility in the long run.
- Length of Credit History: The longer your history of responsible credit use, the better it is for your score. Before you close any old accounts or open a new account, consider how this will impact the average length of your credit history.
- Credit Inquiries: When you apply for credit, the lender will likely pull your credit report, which will result in a hard inquiry. If you have several hard inquiries in a short period of time, you can lower your credit score and appear risky to lenders. It’s always best to limit the number of credit inquiries you make and avoid applying for credit when you’re going through the home loan process.
- Regularly Check Your Credit Report: Keep an eye on your credit report for any errors and dispute any inaccurate information you find. Knowing where your score sits and how it’s changing over time can give you the insights you need to get it as high as possible.
Partner with a Philadelphia Mortgage Company You Can Trust
At Penn Street Mortgage, we know that your credit score is just one part of your broader financial picture. Our team of experienced Philadelphia mortgage brokers is here to make sure you understand every step of the mortgage process and give you the advice you need to get the best interest rates.
If you are looking to improve your credit score, explore mortgage options, or apply for a home loan, we are here to support you at every stage of your homeownership journey.
Contact us today or visit our website to start the process.