Credit Scores: How They Affect Your Loan & Mortgage Rate
Your Credit Score Impacts Your Mortgage Rate
Your credit score is a very important component of your mortgage qualification. Within defined limits, the higher your credit score is, the lower your mortgage rate will be. Many loan programs have cut-offs that set the lowest credit score for which a loan can be approved, so it is very important to know your score early in the mortgage process.
Through DNJ Gateway Mortgage’s free, no obligation mortgage pre-qualification we will review your credit with you. You will receive a copy of your credit report and your scores will be provided to you.
In the current market, a score over 740 is considered excellent and will earn you the lowest rates. In general, for every 20 points below 740 your rate quote will be impacted.
Not All Credit Reports Are the Same
It’s important to remember that the credit report you have access to online may be different from the one we pull as a mortgage lender. A car finance company or credit card company will obtain a different score as they have different scoring methods.
Credit scores are constantly fluctuating based on late and on-time payments, balances, new credit and other factors. Credit bureaus may also change their formulas on which scores are based. Because of these changes, a credit report is generally only valid for 90 days.
Will Requesting a Credit Report Lower My Score?
If you pull your own credit report through one of the bureaus it does not count in any way against your credit score. However, the report you pull can not be used as a part of the loan approval process. It can only be used to get an idea of your current score.
If a credit card company or mortgage lender pulls your credit report it does count against your score. Your score is also lowered every time you apply for any sort of financing, housing, insurance, employment, etc. that requires your credit report to be pulled. How much is your score affected? Each credit inquiry can lower your score as much as five points.
The scoring system counts multiple inquiries made in a 14 day period as just one inquiry, and all inquiries made within 30 days of the credit score being calculated are ignored.
What is a Credit Bureau Score, and How is it Calculated?
Credit scoring is a way of determining how likely a borrower is to pay back their loan. Scores range from around 300 to 850 points and are available from three national credit bureaus: Equifax, Trans Union and Experian. The scores are often referred to as FICO scores.
The score is a statistical analysis based on the information available in the loan applicant’s credit report and is designed to measure the amount of risk the borrower represents to the lender. The credit score does not measure your income, assets or bank account (though these may still be taken in to account independent of the score).
The score is calculated using a system of scorecards that have been developed using credit data on millions of consumers. The bureau takes this data and analyzes credit patterns to predict risk and forecast credit performance. The types of information used include:
- Payment history
- Outstanding debt
- Credit history
- Number of credit inquiries and new account openings in the last year
- Types of credit in use – bankcards, installment loans, department store cards, etc.
The Middle Score
The score used when determining your mortgage rate is the middle score of three. For each borrower the high score and low score are discarded and the score in the middle is the one considered. In the case of co-borrowers, the lower of the two middle scores is used.
Example scores: 725, 733, 710
The middle score, 725, would be used when considering your loan application.
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We work with homeowners and home buyers across North Carolina. DNJ also offers mortgages in Delaware, Maryland, Virginia, Tennessee, South Carolina, Georgia and Florida.