A credit score is a number that helps your mortgage lender predict how likely you are to make your credit payments on time. If you have a higher score, you are more likely to be approved and pay a lower rate on new credit. Conversely, a lower score may mean you could be forced to settle for a higher rate and more rigorous approvals.

How your credit determines your mortgage rate

Your FICO® credit rating, developed by Fair Isaac Corporation, is today’s most commonly used scoring system. It can range from the worst possible score of 300 to a perfect 850; most people score in the 600s and 700s. Your score is determined by a number of factors:

• Your payment history: Timeliness is important. Late payments, bankruptcies and other negative items can hurt your score.



• How much you owe: The less amount of credit you owe compared to your credit limit, the higher your score will be.



• Length of credit history: The longer your credit history, the better.



• New credit: New credit accounts that are recently opened may hurt your FICO score, particularly if you’re searching for many new credit lines.



• Other factors: The amount you allocate towards paying off debt, the number of cards you carry and more, are all factored in.

What you can do to improve your credit score

Improving your credit scores can lower your interest rates, speed up credit approvals, and help you get better mortgage offers. Here are the key actions you can take:

• Pay your bills on time. Even one delinquent payment can affect your score.



• Reduce the amount of total debt you may be carrying from credit cards to car loans and student tuition loans.



• Keep balances low on credit cards. High debt levels can hurt your score.



• Limit the number of inquiries into your credit history. Apply for and open new credit card accounts only when absolutely necessary.



• Pay off debt rather than transfer it to other cards. You want to pay down credit debt, not move it from card to card.



• Check your credit report regularly and make sure it’s accurate. If not, report the errors to the creditor and credit reporting agency immediately.

If your credit has been less than sterling, don’t despair. Many people dig themselves out of a bad situation over time, with work and perseverance. All it takes is a solid commitment.

How to check your credit

Credit reporting agencies collect information about you your credit history from public records, your creditors and other reliable sources.

These agencies make your credit history available to mortgage lenders as allowed by law.

Equifax
Web: www.equifax.com
Phone: 1-800-685-1111

Experian
Web: www.experian.com
Phone: 1-800-682-7654

TransUnion
Web: www.transunion.com
Phone: 1-800-916-8800

IMPORTANT: Since September 2005, Americans have been entitled to receive a free credit report once every 12 months from each of these nationwide credit reporting agencies. Go to www.annualcreditreport.com for a free credit report and to challenge any discrepancies.