Credit scores are huge in the mortgage world. They affect your interest rate, mortgage program and even your chances of underwriting approval. They can also affect your homeowners insurance premium and your mortgage insurance rates.
Having your credit report pulled by mortgage companies can affect your score – but credit bureaus have made a policy to allow "rate shopping". You may talk to as many lenders as you want in a 14 day time span and it is supposed to count as one credit inquiry on your score. The reason behind it is simple – you will only get one mortgage. If you are shopping for clothes, you may have each store pull a credit inquiry and you can open several credit cards in one trip. You won't be approved for several mortgages. A mortgage credit inquiry may drop your score by about 5 points.
Keeping your credit card balances at half or a third of the available credit is also important. Some people use one card and may charge it close to the limit every month, but also pay it off every month. Depending on when a mortgage company pulls your credit report, your balance may be reflected as high simply because your credit card company hasn't updated your information that month.
Make sure you are using your credit card. I had a borrower that paid off his mortgage and credit cards. All he was using was his debit card. His credit score dropped due to lack of use of credit. If you do not have any balances on any of your accounts – mortgage, cars, credit cards, you may see your score drop or even disappear.
For your credit score to be valid, many mortgage companies require a minimum of 3-4 tradelines, ideally with a 12 month history. FHA is not as strict about this, but mortgage insurance companies are for conventional loans.
Make sure your payments are on time. Check your credit reports every so often. You can get a free annual report through www.annualcreditreport.com. It does not count as an inquiry on your credit report as you are checking your own report.
