What Lenders Look for in Your Credit Score

Credit is a significant component in enabling you to qualify for a mortgage, whether it’s a new purchase or a refinancing. Here are some of the basics you need to know about credit to help you become a more informed consumer.

Your credit score

Your lender will access your credit score to evaluate your creditworthiness. The term “credit score” refers to the middle of three scores, obtainable through three credit bureaus that provide scores: TransUnion, Experian and Equifax.

Several factors will affect your credit score, but there are two that play more significant roles than the others:

1. Revolving debt, such as credit cards that are over their limits, and

2. Recent late payments.

Pay down your cards

Credit cards that are over their limits, especially when you have several of them, indicate that you are overextended with the credit that you have available to you.  This weighs on your credit score in that lenders may be reluctant to give you more credit if you are having challenges with the debt that you currently have.

There is a solution to this. Often you can have a positive effect on your credit score simply by paying off or paying down credit card debt to show that the amount of credit available to you is much larger than what you owe.

Recent late payments are another flag for lenders who are looking at your credit profile and assessing your ability to pay back the loan.

Over time, many items on a credit report will either fall off or have a minimal impact on your score.  It is, however, the most recent items on the report that give lenders an idea of your payment habits.

If you have had a number of late payments in the past several months, you may be sending out signals that this will be your behavior after receiving a mortgage.