THIS PAGE MAY CONTAIN AFFILIATE LINKS. MEANING WE RECEIVE COMMISSIONS FOR PURCHASES MADE THROUGH THOSE LINKS, AT NO COST TO YOU. PLEASE READ OUR DISCLOSURE FOR MORE INFO.
What would you say if I told you that you could save more than $40,000 when you buy a home just because of your credit score? You’d probably realize the importance of checking your FICO score before you apply for a mortgage.
According to MyFICO.com, a 100-point difference in your FICO score could mean over $40,000 extra in interest payments over the life of a 30-year mortgage on a $300,000 home loan.
Of course, your FICO credit score affects a lot of different areas of your life, but it’s especially significant when you apply for a mortgage. Applying for a mortgage can be a harrowing process — and knowing your credit score can give you greater power and peace of mind.
If you check your credit reports from all three credit bureaus and check your FICO credit score, you’ll have a good idea of whether or not you’ll receive the mortgage you need to buy your dream home — and how much it will cost in interest.
How to Check Your Credit and Get Your Credit Score
You can get your credit report for free from all three major credit reporting agencies in the U.S. through AnnualCreditReport.com, but this report does not include your credit score. While a credit report affects and determines the majority of your credit score, you should also check your FICO scores before you apply for a mortgage. Because information differs on each of your credit reports, your FICO score may be different too.
As of last year, FICO scores from Experian are no longer available to the general public, although lenders may still use this score to evaluate your creditworthiness. Viewing your FICO scores from Equifax and TransUnion, however, will give you a good snapshot of your credit. You can get these from MyFICO.com.
Look over your Experian credit report carefully for discrepancies. If the information on all three credit reports are the same, and there are no major errors, chances are your Experian FICO score is in the same ballpark as the other two.
How to Repair Your Credit
Estimates say that nearly 50% of all credit reports contain errors that are damaging enough to disqualify an applicant from a mortgage. Don’t pay an agency to “fix your credit,” though. You can learn how to repair your credit for free and do it yourself with just a little bit of time and diligence. This article explains how to write a debt dispute letter.
You can also add notes to your credit report concerning negative items. You can list reasons for non-payment or explanations of negative items if you can’t get them removed.
If you notice errors or discrepancies on your credit report days before your mortgage is approved, your mortgage broker can help you file what is known as a “rapid re-score” to help you get the mortgage at the lowest interest rate possible.
Why Your FICO Score Matters
The FICO score is the best known credit scoring system used in America. There are other systems, such as NextGen and VantageScore, but FICO is still more widely used — 90% of all major banks use one (or more) of your three FICO scores to calculate the risk of lending you money.
The FICO score ranges from 300 to 850 with most scores falling between 650 and 799. The lower the score, the higher the credit risk, and a borrower’s interest rates (and whether or not they can get a loan) will be affected. Knowing your score before applying for a loan allows you to have a better idea of where you stand in regard to gaining a mortgage and whether you’ll be able to afford the monthly payments at the interest rate you can get.
Other Factors To Consider When You Apply for a Mortgage
A good credit score is not the only factor in getting a mortgage. Lenders also look at:
- Your employment history (should be at least two years with the same company, or in the same industry with a solid work history and no previous employment gaps)
- Your total income
- Down payment funds available (and where they came from)
- Your recent bank statements, usually the past three months
Getting approved for a mortgage is possible even if you have less-than-perfect credit — even in today’s economic climate of tighter lending requirements. Some lenders will approve you for a mortgage if you choose a home in your price range, have a large enough down payment and have a solid work history.