The lender determines your eligibility for a mortgage loan based on a number of factors, including your income, debt load and the price tag of the house. But one key detail the lender needs to know before proceeding is your credit score. This score is an accurate reflection of your credit-worthiness and whether you'll be committed to paying back your mortgage loan on time and in full.
Importance of Credit Score for Mortgage
If you and your partner have been researching the process of getting a mortgage loan, you've probably heard the term credit score about a hundred times by now. But if so, that's only because it's so crucial to getting a home loan. The credit score, which can range from 300 to 850, is a solid predictor of whether you will honor your financial obligations. Lenders are very strict about credit score requirements and some won't even consider you for a loan if your score is less than a 620.
Out of the three credit scores that represent your personal credit history (based on credit reports from Transunion, Experian and Equifax), the score that mortgage lenders commonly use is the one in the middle. This is important to note because you may think your Transunion score of 750 is great, but if you have a 680 with Equifax and another of 700 with Experian, 700 becomes your relevant score. This middle score is sometimes called the "representative" credit score.
If you plan to apply for this mortgage with your spouse, the lender considers both of your middle scores during the process. So if your middle score is 700 and your spouse's is 730, the spouse's higher score may afford you a better loan than if you applied alone. If you middle score is low, the lender may even require the spouse as a co-applicant in order to proceed with the loan.
Pull Your Score in Advance
To avoid undesirable surprises when you attempt to apply for a mortgage loan, it's prudent to pull your own scores at least six months before you start making calls to lenders. This way you're prepared and you also have time to try to improve your scores as well. In addition to the scores, you need to get your credit report history so that you can take action to resolve issues. For example, if you see an account listed that you don't recognize, dispute it to have it removed, which may increase your credit score rather quickly.