There are many factors that affect your credit score, from your income, your monthly bills, to your lines of credit. Your credit score impacts numerous factors in your life, including your ability to purchase a home. The rates and terms of your mortgage will depend on whether your credit score is high or low. If you are interested in purchasing a home in the areas of Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, and want to learn more about how your credit score can impact your mortgage, contact Foundation Mortgage today.
Credit Score and Mortgage Approval
Your credit score is one way for lenders to assess how likely you will be able to make your loan payments on time. Essentially, the higher your credit score is, the better your chances of getting approved for a mortgage will be. Your credit score is calculated based on a couple different categories that rate your financial health, such as your payment history, the length of your credit history, the balance-to-limit ratio on your cards, how much overall debt you have, and recent activity on your credit cards. If you have a decent credit score, this shows lenders that you have a strong financial history and are likely to be able to pay back your loan in a timely manner. Lenders want to avoid lending to borrowers who are likely to default on a loan because that puts them at risk of losing money.
What Constitutes a Good Credit Score?
FICO scores are a commonly used type of credit score that credit bureaus report, and their scores range from 300 to 850. A credit score of 670 or higher is typically considered a “good” credit score, but a score lower than that will likely be seen as more of a risk by lenders. The higher your score, the lower interest rates you will be able to secure. If you are even able to improve your credit score by 20 points, it could make a significant difference in the amount you pay for your mortgage.
Improving Your Credit Score
If you want to improve your credit, there are a few things you can do to build up your score, including:
- Pay off your debts that have the highest interest rates
- Consolidate your debt to a lower interest rate to pay off outstanding debt more quickly
- Keep track of your balances and ensure that there are no errors that may be affecting your credit score
- Keep all your current credit lines open, do not close accounts. This can increase your score by making smaller purchases and immediately paying them off.
If you want to learn more about improving your credit score so you can secure a great mortgage rate, Foundation Mortgage is here to help. We serve clients in the areas of Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee. Contact our loan specialists today for a consultation.