There are many people who are interested in purchasing a home for the first time. Even though many first-time homeowners are interested in the sticker price of a home, it is just as important to consider credit scores. Anyone who requires financing to purchase a home will have to go through a credit check. What credit score is considered high enough for a home loan? What do people have to do if they want to increase their credit scores?
What Credit Bureaus Do Lenders Use?
First, a credit score is a reflection of someone’s overall financial health. A lender wants to make sure someone has the ability to pay back a mortgage before they give that person a home loan. The higher someone’s credit score is, the more likely the lender believes he or she will have that loan repaid.
In general, there are three major credit bureaus. They include Experian, TransUnion, and Equifax. Most lenders are going to run something called a triple merge (or a trimerge) when they check someone’s credit. This means the lender is going to check someone’s credit score with all three major credit bureaus before deciding if someone should receive a home loan. All three major credit bureaus calculate credit scores using the Fair Isaac Corporation, or FICO, numbers, but they calculate credit scores slightly differently.
What Is Considered A Solid Credit Score?
Every lender has a slightly different metric, but a credit score less than 580 is considered poor. In contrast, a credit score over 800 is considered excellent. The maximum credit score someone can have is 850. If a loan is given to someone with a score under 620, this is considered a “subprime” loan. It is possible for people to qualify for a home loan with a low credit score, but they may be facing a higher interest rate.
Those who are interested in raising their credit score should pay all of their bills on time. It is also important for individuals to pay down as much of their debt as possible before applying for a home loan. This could help them increase their credit scores and get approved for a loan with a solid interest rate.
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About the Author:
Babak Moghaddam graduated from University of Southern California in 1985. He entered the mortgage industry as a compliance auditor at the Bank of New York in 1986 and completed his masters in Business Administration two years later. After seventeen years in the traditional mortgage banking world Babak finally transformed this vision into his own practice in 2002 when he formed Charter Pacific Lending Corp, a mortgage company that has provided over $900 Million in residential real estate loans throughout Southern California. Babak and his team do things a little differently than other mortgage providers. They work as financial advisors, because they have come to realize that a mortgage is a very powerful financial tool. And just like any other financial tool, it should be managed as part of the overall financial management plan to reach every home owner’s long and short-term financial goals much faster. You can contact Babak for a free consultation and strategy session at (800) 322-1217 X103.