Mortgage Credit Education for Homebuyers

A woman checking her credit score online.

Your credit score is important when it comes to buying a home, so it is important to educate yourself on what it is, how to check your credit score, and how to build credit to better meet your financial goals. 

What is a credit score? 

Your credit score is what lenders and banks use to assess your ability to pay back whatever money you borrow. Your credit shows your history of how you’ve handled debt and having a good credit score can make the home buying process easier and more affordable. The higher your credit score, the lower the mortgage interest rate you may qualify for.

Calculated based on your personal credit history in your credit report, your credit score is intended to predict how likely you are to repay your debts. The information in your credit report includes details about your credit activity and current credit situation, including your loan payment history and the status of your credit accounts.  

Your credit history includes how many credit cards you have, how many loans you have, and if you pay your bills on time. If you have a credit card or a loan from a bank, you have a credit history and some non-traditional accounts may be reported like rental and utility payments. An important factor of your credit score is how much you currently owe on each account compared to its original loan amount or credit limit.

How do you check your credit score? 

It is first important to understand that your credit score and credit report are two different things. You’re entitled to a free copy of your credit report every 12 months from each of the three nationwide credit bureaus by visiting www.annualcreditreport.com

While you should check your credit reports at least once a year to make sure there are no errors that could keep you from getting credit or the best available terms on a loan, these credit reports usually do not contain your credit score. 

  • Check your credit report before making a major purchase that may involve a loan, such as a house or a car.
  • If you are shopping for a mortgage, knowing your credit scores can help you find out the range of mortgage rates you can expect.
  • Check your credit report before applying for a new job since many companies look at your credit history when hiring employees.
  • Identity theft occurs when someone uses your personal or financial information to commit fraud, so checking your credit report can help to guard against identity theft.

In addition to checking your credit report each year, you can check your credit score to see how you are doing and whether you are in a good position to meet your financial goals: 

  • Check your credit card, financial institution, or loan statement. Many credit card companies, banks, and loan companies have started providing credit scores for their customers. It may be on your statement, or you may have access to it online by logging into your account.
  • Purchase credit scores directly from one of the three major credit bureaus or other providers, such as FICO.
  • Use a credit score service or free credit scoring site. Some sites provide a free credit score to users. Others may provide credit scores to credit monitoring customers paying a monthly subscription fee.

How can I build my credit?

Paying your bills on time and minimizing how much you owe in relation to your credit limits can help you to build a strong credit portfolio. 

If you have no credit history, you will want to start to build it wisely by applying for No Credit Needed payment options and make all of your payments on time. If you have a credit history and want to increase your credit score, be sure to pay your loans and other bills on time. Even if you have fallen behind in the past, you can work on rebuilding your credit history by making payments on time now.