How Credit Scores Work
Credit is one of the most important components in the mortgage approval process. Lenders look at a borrower’s credit score, number of open accounts, payment history, type of credit borrowed and a series of other factors when determining the level of risk in each lending scenario. Down payment requirements, loan programs, flexibility on income, and even interest rates can be impacted by a slight bump in a credit score.
Key Factors that Affect Your Score
Once credit has been established and maintained, credit scores are based on five factors to varying degrees: payment history, amounts owed, length of history, credit usage and new accounts.
Several factors can be used to establish credit initially, including bank accounts, employment history, residence history, and utility bills. Credit may be initially obtained through a bank, where a credit card is linked to money deposited in the bank.
Understanding Credit FAQs
My credit score is bad – how can I improve it?
You can work on each of the five areas detailed above that comprise your score. As you improve on these, your credit score will reflect that. UW Funding can work with you on improving your score toward taking out a mortgage.
How high of a score do I need to take out a home loan?
Generally speaking, 620 or higher – though this will differ between individuals, lenders, and mortgage programs.
I’ve never had any credit and I don’t have a credit score. Should I get a line of credit and work on having a good score?
In short, yes. Having a good credit score will allow you to do lots of things – like finance a car, rent an apartment, and purchase a home – for the lowest cost to you.
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