Credit Scores and Buying A Home

CREDIT SCORES AND BUYING A HOME

CREDIT SCORES AND BUYING A HOME

1

Introduction

2

What Is Credit?

3

How Credit Is Determined

4

5

6

Does My Credit Score Matter?

No Credit Scores and Low Credit Scores

The Impact of Credit Scores When Buying a Home

Credit Scores & Buying a Home

Credit is a little word that packs a big punch for most people, especially when you’re buying a home. Understanding credit and how it works can be overwhelming. So, let’s try to simplify it! We’re here to break down what you need to know about credit and how it can impact you as a home buyer.

What Is Credit?

Simply put, credit is what allows you to borrow money that you will pay back later. Typically, the amount of credit, or money that you can borrow, is based on your credit score.

A credit score is a number, usually ranging from 0 to 850, that is based on your credit history to help determine your creditworthiness.

How Credit Is Determined

The main determination for a credit score comes from widely-used consumer credit scoring framework FICO® (the Fair Isaac Corporation) and Vanguard. They get reports from the three credit bureaus (Experian, Equifax, and TransUnion) that create your credit “worthiness” based on the score they give you.

A bank or lender will then determine how much you can borrow by factoring in your credit score (among other things we’ll share in just a moment). Your credit score is determined by both your credit usage history and payment history. Everything is put onto a credit report for you.

For example, most people 18 years old or younger, don’t have a credit score. They may take out a student loan or get their first credit card to start building credit. You can also build credit through things like cell phone plans or even making payments on certain bills, such as medical bills.

Your credit score will go up when you pay your bills on time, and will go down when you do not. However, guidelines have recently changed regarding medical bills as of July 2022. Medicals bills used to be a big factor of credit reports, especially since they tend to be large bills.

Now, all paid medical debt will be taken off credit reports and no new medical debt will be reported for a year from the payment date. This debt used to be reported after six months, so this change gives you time to pay that off without worry.

There will be another update in 2023 where all medical debt under $500 will be taken off credit reports, no matter the payment status.

Does My Credit Score Matter?

People ask us all the time if a credit score really matters. In short, yes. The longer answer is, it depends. Some people choose to not have a credit score at all (more about that later). If you do have a credit score, and it’s in the “very good” to “excellent” range, you will have access to better interest rates, lower payments, and more borrowing power.

Here’s an example of how your FICO® credit score is determined:

Have you heard? There may be some changes happening with the current credit score model that will help more people become homeowners. Keep in touch with Churchill Mortgage for updates!

No Credit Scores & Low Credit Scores

Let’s go back to what it means to have no credit score. If you have a low or poor credit score, a no score loan will not work for you. No score is a credit score of zero meaning you are credit invisible or “unscorable” to the three credit bureaus.

Most lenders do not offer loans without a credit score, but Churchill Mortgage accommodates this type of loan on a regular basis with expertise. If you’re applying for a no score loan, you’ll provide non-traditional sources of steady payment history such as:

Rent

Utility bills

Cell phone bills

Tuition or childcare payments

Insurance premium payments

Regular, timely deposits to your bank account

It’s important to note that a low score doesn’t always mean you haven’t paid your bills on time. It could mean you’re still building up credit or you aren’t using your credit often enough to impact the score. There are many nuances and fluctuations when it comes to credit scores, and we always recommend speaking with a trusted financial advisor to determine the best course of action when looking to improve a credit score or get to a no score status.

The Impact of Credit Scores When Buying a Home

Many loan programs require your credit score to be in a specific range, so if you are choosing to finance your home, you’ll want to find out what score is needed to qualify. Any late payments or negative marks such as defaulting on a loan or having too many (or not enough) inquiries can affect your credit score negatively.

However, on-time payments, a small amount of inquiries, a low-credit usage rate, etc. will impact your credit report positively. This can help to secure a better interest rate and expand your buying power.

Let’s walk through how to set yourself up for success when borrowing money to buy a home

Check your credit report. You can download your entire credit report free of charge each year through freecreditreport.com. This will give you an overview of your current credit status before a lender pulls it.

Go over your finances. Sit down and see what you’re spending versus what is coming in. This will determine your debt-toincome ratio. It will also allow you to see where you can cut spending and revise your budget to pay down debt and save.

Dispute any marks on the credit report you don’t recognize.

Work with a Churchill Home Loan Specialist to ensure you’re getting the smartest mortgage plan possible for your unique goals.

Looking at the past 10 years of FICO credit scores, the average U.S. score has risen from 689 to 714.

Fannie Mae (a governmentbacked company that provides people access to affordable mortgages) states the average credit score of a first-time home buyer is 746. This discrepancy grows larger when you see the average millennial credit score is 686. The millennial age bracket makes up the largest amount of home buyers, currently.

That doesn’t mean buying a home is impossible. For example, at Churchill Mortgage a buyer would typically need a credit score of at least 620 to qualify for a conventional loan (the most popular loan), or a loan that is not backed by any government programs.

The difference is the interest rate a home buyer would lock in with a credit score of 746 is likely to be better than the buyer with a score of 620. A lower interest rate can save you thousands over the length of your loan, allowing you to be out of debt faster. This savings can be put toward retirement, college funds, or giving back to the community.

Don’t forget, credit isn’t the only thing that impacts your home loan. There are over 30 things that can affect your interest rate such as your down payment, home price, loan amount, and loan term.

We realize every home buyer’s situation is unique. But, it’s always important to stay on top of your credit score—whether it’s 0 or 850. It’s a great way to keep track of your progress if your goal is to pay off your debt. And if you’re already debt free, you can ensure it stays that way!

That’s why Churchill Mortgage is committed to doing what’s right for you. We get you on a smarter mortgage plan based on your long- and short-term goals. If you’re hoping to buy, reach out to us. We’ll go over your options with you and help you find the home loan that best suits you and your family.

Company NMLS ID # 1591 (www.nmlsconsumeraccess.org); AL-20934; AK-AK1591; AR-32094; AZ-0926494; CA-4131256 & 60DBO-140687, Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act, under Churchill Mortgage Corporation, which will do business in California as Churchill Mortgage Home Loans; CO-Mortgage Company Registration, Churchill Mortgage Corporation, 1749 Mallory Lane, Suite 100, Brentwood, TN 37027, Tel 888-562-6200, Regulated by the Division of Real Estate; CT-ML-1591; DE-033845; DC-MLB1591; FL-MLD1264; GA-23146; HI-HI-1591 & MS276; IDMBL-8038; IL-MB.6760685, Illinois Residential Mortgage Licensee, Department of Financial and Professional Regulation, 310 S. Michigan Avenue, Suite 2130, Chicago, Illinois, 60604-4278, (312) 793-3000 1050; IN-10930 & 10931; IA-2009-0009; KS-MC.0025136, Kansas Licensed Mortgage Company; KY-MC19522; LA- Residential Mortgage Lending License; MA-Massachusetts Mortgage Lender License #ML1591; MD-18840; ME-Churchill Mortgage Corporation, Supervised Lender License NMLS # 1591; MI-FR0019728 & SR0014889; MO-19-2136, 2300 MAIN ST STE 900, Kansas City, MO 64108-2408; MN-MN-MO-1591, MN-MO-1591.1 & MN-MO-1591.2; MS–1591; MT-1591; NC-L-144110; ND-MB103110; NE-2037; NH-Licensed by the New Hampshire Banking Department 21382-MBS; NJ-Licensed Mortgage Banker by the NJ Banking and Insurance Department; NM-03780; NV-5187; OH-RM.850178.000; OK-MB002527 & ML002574; OR-ML-5134; PA-41761, Licensed by the PA Department of Banking and Securities under Churchill Mortgage Home Loans; RI-20173440LL; SC-MLS-1591, MLS - 1591 OTN #1 & MLS - 1591 OTN #2; SD-ML.05137; TN-109305; TX-Mortgage Banker Branch Registration; UT-11711076; VA-MC-5222, Churchill Mortgage Corporation of TN; VT-7009; WA-CL-1591; WV-ML-34919; WI1591BA & 1591BR; WY-2516; Tel 888-562-6200; 1749 Mallory Lane, Suite 100, Brentwood, TN 37027; All other states, Churchill Mortgage Corporation; For licensing information go to: www.nmlsconsumeraccess.org

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Company NMLS ID # 1591 (www.nmlsconsumeraccess.org); AL-20934; AK-AK1591; AR-32094; AZ-0926494; CA-4131256 & 60DBO-140687, Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act, under Churchill Mortgage Corporation, which will do business in California as Churchill Mortgage Home Loans; CO-Mortgage Company Registration, Churchill Mortgage Corporation, 1749 Mallory Lane, Suite 100, Brentwood, TN 37027, Tel 888-562-6200, Regulated by the Division of Real Estate; CT-ML-1591; DE-033845; DC-MLB1591; FL-MLD1264; GA-23146; HI-HI-1591 & MS276; IDMBL-8038; IL-MB.6760685, Illinois Residential Mortgage Licensee, Department of Financial and Professional Regulation, 310 S. Michigan Avenue, Suite 2130, Chicago, Illinois, 60604-4278, (312) 793-3000 1050; IN-10930 & 10931; IA-2009-0009; KS-MC.0025136, Kansas Licensed Mortgage Company; KY-MC19522; LA- Residential Mortgage Lending License; MA-Massachusetts Mortgage Lender License #ML1591; MD-18840; ME-Churchill Mortgage Corporation, Supervised Lender License NMLS # 1591; MI-FR0019728 & SR0014889; MO-19-2136, 2300 MAIN ST STE 900, Kansas City, MO 64108-2408; MN-MN-MO-1591, MN-MO-1591.1 & MN-MO-1591.2; MS–1591; MT-1591; NC-L-144110; ND-MB103110; NE-2037; NH-Licensed by the New Hampshire Banking Department 21382-MBS; NJ-Licensed Mortgage Banker by the NJ Banking and Insurance Department; NM-03780; NV-5187; OH-RM.850178.000; OK-MB002527 & ML002574; OR-ML-5134; PA-41761, Licensed by the PA Department of Banking and Securities under Churchill Mortgage Home Loans; RI-20173440LL; SC-MLS-1591, MLS - 1591 OTN #1 & MLS - 1591 OTN #2; SD-ML.05137; TN-109305; TX-Mortgage Banker Branch Registration; UT-11711076; VA-MC-5222, Churchill Mortgage Corporation of TN; VT-7009; WA-CL-1591; WV-ML-34919; WI1591BA & 1591BR; WY-2516; Tel 888-562-6200; 1749 Mallory Lane, Suite 100, Brentwood, TN 37027; All other states, Churchill Mortgage Corporation; For licensing information go to: www.nmlsconsumeraccess.org