Credit Score 101
Before you start looking at homes, it would be a good idea to figure out what your credit score is*. This is one of the primary metrics used to determine if you can qualify for a mortgage, and what terms you may qualify for. To better understand your creditworthiness, obtain your credit score and obtain your free credit reports from each of the three credit reporting agencies: Equifax, Experian, and TransUnion.
Credit score requirements to qualify for a home loan
Credit scores range from 300 to 850 with a higher credit score indicating a lower credit risk. While a score of 700 and higher is generally considered good, you can qualify for a home loan with a lower credit score. A conventional home loan, FHA home loans, and VA home loans all have flexible qualifying criteria**.
The truth is that the majority of Americans have a “fair” credit rating or above. Experian reports that only 16% of people have credit scores under 580. That means that there’s a good chance that you may qualify for a home loan. Your best course of option is connecting with a local Loan Officer and discussing what your current situation is, and what your goals are for your future.
Actions that can influence your credit score
When a FICO® Score is calculated from your credit report, the credit reporting agency will also provide up to five reasons that are most heavily influencing that score. Some of the more common contributing factors that influence a credit score are:
- Pay your bills on time. Delinquent payments on your utility bills, even if only a few days late can negatively impact your score.
- Reduce your amount of credit card debt. Create a personal payment plan to apply your “pay off debt” budget towards the highest interest cards first, while maintaining minimum payments on your other accounts. When the highest interest credit card is paid, apply the same amount you were paying to the next credit card on your list.
- Don’t open new credit cards and move debt around. Opening new accounts just to have a better credit mix or to spread out your existing balances over more cards is unlikely to raise your credit score.
- Don’t close old credit cards. As you pay off each credit card balance, keep the account open to demonstrate a longer credit history.
Significant changes to how medical debt is reported
The way your credit score is calculated is changing to help consumers – specifically those with medical debt.
Equifax, Experian, and TransUnion have agreed to significant changes that will remove nearly 70% of medical collection debt from consumers’ credit reports. After the COVID-19 pandemic and a close look at the prevalence of medical collection debt on credit reports, the agencies moved to make these changes effective July 1, 2022.
Changes include:
- Medical collection debt will be removed from credit reports after it has been paid. Typically, debt sent to a collection agency remains on a report for up to 7 years.
- Negative reporting for unpaid accounts will appear on reports only after 12 months have passed. This gives consumers extra time to finalize questions with providers and insurers before the debt affects their credit rating.
- Medical collection accounts below $500 will not be included on reports at all.
It’s not every day that we receive good news around credit! If you or someone you care about has been denied credit or paid more due to a low credit score impacted by medical collection debt, it may be time to try again.
Obtain your annual credit report
You’re entitled to one free copy of your credit report every 12 months from each of the credit reporting agencies. Order your credit reports from annualcreditreport.com or call 1-877-322-8228.
Consistency is key during your mortgage process
After speaking with a Loan Officer, it’s critical to keep your credit and finances consistent during the application process. While processing your mortgage, underwriters are working behind the scenes to verify your financial information and assess whether you’ll be able to handle the responsibilities of your mortgage.
You should try very hard to maintain your credit rating through the mortgage process, which means:
- Don’t apply for new credit
- Don’t miss credit card or loan payments
- Avoid making any large purchases
- Don’t switch jobs
- Ensure any significant deposits to your account have a paper trail
In general, you should avoid taking any actions that may have an impact on your credit score. If you’re unsure, speak with your Loan Officer before making any decisions.
Wrap Up
Buying your dream home is possible! And with Certainty by your side, you can navigate the mortgage process with confidence. Find a local Loan Officer near you to discuss your goals.
* Certainty Home Lending does not offer credit repair services. ** Certainty Home Lending has no affiliation with the US Department of Housing and Urban Development, the US Department of Veterans Affairs, the US Department of Agriculture or any other government agency.
All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Certainty Home Lending does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by Certainty Home Lending. Certainty Home Lending its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action.