Credit Score Tips

Your Credit Score will have the most significant impact on your ability to qualify for a home loan, the rate you qualify for and even how much you pay for homeowners insurance. It is a direct measure of your payment history. You have the ability to impact your score. Even if you have good credit and a high score, it is important to monitor your credit to correct any errors that may blemish your good record.

Here are some basic tips.

Lower scoring borrowers will pay a premium for their mortgage in both rate and fee. The best rate and fee structures are available only to higher scoring borrowers.
  • Credit Scores range from 450 on the low end to 850 as a high.
  • The best interest rates on conforming loans from Fannie Mae and Freddie Mac are available at a score of 740 and above.
  • Minimum qualifying score for conforming Fannie Mae / Freddie Mac loans is 620.
  • FHA and VA mortgage loans are government insured programs and require a minimum 580 credit score.
  • DO use credit ‘strategically ‘. Too little credit use can actually lower scores. A good credit profile should include at least 5 open active trade lines with recent payment history. The mix of accounts should include 2 installment accounts, mortgage loans and car payments are common examples. Plus, 3 revolving accounts, typically credit cards or a small home equity line of credit (HELOC). A HELOC with a loan limit of 40K or under is considered small. Over 40K, your HELOC will appear as an installment account for the purposes of credit scoring.
  • Revolving Credit uses a 30/50 Rule - averaging a 30% balance on a revolving account (credit card) will build your credit score. A 50% balance will maintain your score. Exceeding 50% of the credit limit on that specific account, will decrease your score.
  • Installment credit uses a 50% rule pertaining to HELOCs. The 50% rule does not apply to your primary mortgage balance.
  • Payment history is the largest single contributor to your score. History on both categories, installment and revolving is important. Ideally, both are paid timely. If you must choose, ensure your installment accounts are paid, mortgage loans ranking #1.
  • Zero balances on your credit cards, meaning you do not use them, do not improve credit score. Credit scoring models measure RECENT credit use. This does not mean you can’t use them and pay the balance off each month so you don’t incur finance charges.
  • If you don’t have a credit card, DO get a secured credit card. This is a great way to rebuild or establish credit quickly.
  • AVOID being turned over to “collection” at all costs! If you are disputing a bill and are notified you are being turned over for collection, PAY IT, THEN FIGHT IT. Next to a bankruptcy, collections and judgments will cause you the highest reduction in credit score.
  • DON’T apply for, close, or pay off any credit cards, loans, or other kinds of credit without speaking to your mortgage professional first. This can lower your score.

For additional detail on these topics, check out the following one page fact sheets in the library section of this website.

  • Credit Scoring
  • First Time Homebuyer Tips