Credit Score & Credit Report FAQ: What You Need To Know To Get A Mortgage
Back in the day, schoolteachers used these haunting words to keep students in line, “this will go on your permanent record.” While running in the hallway or a low third grade quiz score has probably never kept a grown up from getting a job, there’s another type of permanent record that could have a major impact on your ability to make any major purchase – your credit score.
A lot of mystery surrounds who determines your credit score, and how. You may also be wondering what the difference is between a credit score and a credit report. In this article, we’ll cover the basics so you know the role each one will play when you’re ready to buy a house.
If you already know that you're ready to apply for a mortgage pre-approval, use Guaranteed Rate's PowerBid* and show sellers and agents that you're ready to buy.
What is a credit score?
A credit score is a three-digit number that tells lenders at a glance how likely you are to pay a loan back, in full, and on time. Now one would think a “zero to 100” range would have been easy to grasp, but the credit score bureaus – Experian, TransUnion, and Equifax – like to keep things interesting, so they went with a range of 300 to 850.
● 300 to 580 = poor
● 580 to 670 = fair (within this range you’ll find the minimums for most mortgage lenders)
● 670 - 740 = good
● 740 - 800 = very good
● 800 - 850 = exceptional
Who calculates my credit score?
Algorithms for the three credit bureaus are crunching your credit history to verify the loans you’ve taken out and how well you paid them back. Where did they get this information? Many companies that you do business with are legally required to report your activity to the three bureaus every month. This includes banks, credit card companies, utilities, and collection agencies.
Were you late? Did you stop paying altogether? How much debt do you have? How many companies do you owe money to? Answers to these questions and more will impact your credit score.
How can I build my credit score?
We all have to start somewhere, and there’s always room for improvement. As young adults transition from dependence to independence, “building a credit score” is an addition to their list of responsibilities. You can do this by getting a credit card, buying items with it, and paying the monthly bill – in full and on-time. If you get a rental apartment, open some utility accounts in your name and your credit score will build and build. These activities will all be compiled in your credit report.
What is on a credit report?
A credit report lists all of your credit accounts – active and closed – plus your bank accounts. You will see the debt you are carrying when your credit providers last reported your monthly balances. Your report will also factor in how many accounts you have, and how long you’ve had them open.
Where can I check my credit report for free?
Check your credit reports from all three bureaus at least once a year by visiting AnnualCreditReport.com – this is the only legitimate website to do so, set up in a mandate by the US government. Be wary of lookalike sites.
What should I do with the information I see in my credit report?
First and foremost – make sure everything on your credit report is correct, but consider the following tips and advice:
● Are there any accounts in your report that you don’t recognize? It’s important to check your credit report a few times per year to ensure nobody has stolen your identity to open up fake accounts in your name. If this happens, report this activity to all three credit bureaus immediately.
● Is any of the information in your credit report incorrect? Such as late payments that you swear you made on time? If so, contact those lenders and request that they correct your account.
● If you did miss a payment by accident, call the affected company immediately to explain what happened and to pay your balance, or make a plan to. Ask them to not report the late payment.
● Have you said yes to every “store credit card” offer just to get a one-time discount at the register, only to never use those cards again? A lot of active credit cards in your report that you haven’t used in ages may have a negative effect on your credit score.
So how does my credit score affect my ability to buy a house?
Unless you have enough money saved up to buy a house in cash, you will need to get pre-approved for a mortgage. The better your credit score, the better qualified you’ll be to get the best possible mortgage rate. The difference between a mortgage at 4% interest and one at 4.5% can add up to tens of thousands of dollars over the course of a 30-year loan.
Can I have a cosigner on my home loan?
Yes – so long as you and the cosigner meet certain qualifications. You still need to have a minimum credit score (usually 620 for a conventional loan or 580 for an FHA loan), enough cash for a minimum down payment, and a debt-to-income ratio (DTI) of 43 percent or less (DTI = your total debt divided by your annual income).
Cosigners allow many young adults to buy property while they build their credit. Your cosigner must be a legal relative or have a documented long-standing relationship with you and their credit score would ideally be better enough than yours to set a lender’s mind at ease.
Does applying for a mortgage hurt my credit score?
Yes – but not by much. When any potential lender checks your credit file (you may hear the term, “pull your credit score”), your score will temporarily dip by a few points. This blip will only affect customers on the edge of one range (let’s say, “good” to “very good”), or near the minimum of loan eligibility. It’s best to clean up your credit score long before you’re ready to buy a house.
Guaranteed Rate also offers a pre-approval that only requires a 'soft credit pull' that won't impact your credit score. Apply today to get pre-approved without having any impact on your credit score.
Where can I get pre-approved for a mortgage?
PowerBid* mortgage pre-approval from Guaranteed Rate makes it easier than ever for prospective home buyers to get pre-approved and compete toe to toe with all-cash offers on desirable properties. Our team will quickly verify your credit report details as well as other financial information to create a well-rounded pre-approval letter that goes above and beyond the industry standard. When we stand behind your offer, sellers can take confidence that your mortgage is most likely to close on time, without delays.
* PowerBid Approval (the “Approval”) is contingent upon receipt of executed sales contract, an acceptable appraisal supporting value, valid hazard insurance policy, and a re-review of your financial condition. Guaranteed Rate, Inc. reserves the right to revoke this Approval at any time if there is a change in your financial condition or credit history which would impair your ability to repay this obligation and/or if any information contained your application is untrue, incomplete or inaccurate. Receipt of an application does not represent an approval for financing or interest rate guarantee. Not all applicants will be approved for financing. Restrictions may apply, contact Guaranteed Rate for current rates and for more information.
GUARANTEED RATE IS NOT A CREDIT REPAIR COMPANY, CREDIT REPORTING AGENCY, BROKER OR ADVISOR. You acknowledge that Guaranteed Rate is not a credit repair company or similarly regulated organization under applicable laws, and does not provide credit repair services. Where available, recommendations, tips and education materials are provided to you at no additional charge, and for educational purposes only. The services are intended to provide you with general information and assist you with identifying your options. The information is provided only to enable you to make your own choices about your personal finance, and is not intended to provide, legal, tax or financial advice. We do not provide any services to repair or improve your credit profile or score, nor do we provide any representation that the information we provide will actually repair or improve your profile. Consult the services of a competent professional when you need any type of assistance. You acknowledge that Guaranteed Rate is not a “consumer reporting agency” as that term is defined in the Fair Credit Reporting Act as amended.