A mortgage credit score measures credit worthiness (the capacity of an individual to pay back the loan). The information given in credit score enables the lender to ascertain the risk involved in lending a sum of money to a person. Through the credit score the borrower can determine how much loan, down payment terms and rates of interest to offer to the borrower. If the borrower has a higher credit rating, they get better rates of interest, lower fees and other charges.

The mortgage credit score does not consist of things like age, income, job or education. The use of all these in calculating the credit score is forbidden by the Equal Opportunity Act. The mortgage credit score is affected by lack of credit history, late payments on loans and the absence of credit preferences.

When getting a home loan, your mortgage credit scores help in the following ways:

• Determine the rate of interest you will pay

• Determine the type of discounts you qualify for on homeowner’s insurance

• What kind of loan program you qualify for

Getting the Best Out of Your Mortgage Credit Score

• You must pay off all your debts as soon as possible.

• You should keep your credit cards open but pay them all off before you apply for a mortgage.

• You can get your credit increased by the credit card companies because a part of your mortgage credit score is calculated according to the total amount of credit available in your entire credit line. The higher the amount of credit and lower the debt, the better position you will be in.

• If you have an excess of credit cards, you can cancel the unused ones after applying for the mortgage.

• You should not make late payments.

• You should take advice from experienced loan officers.

• You can use a mortgage credit score simulator which can help you determine what factors will affect your credit rating. It will be available with a loan officer or a loan agency.

• The payments made on time through credit cards can strengthen your credit score.

• Your credit score can sink if you make changes in your credit situation like opening a new purchase account.

Points to Remember

Your credit score will not be affected by closing old bank accounts. A longer credit history will help you. If FICO score is used, having lots of credit will be valuable. If you pay off your collection account, it can affect your credit score so do no pay off your collection account if you are not in urgent need of doing so. An increase in your income does not affect your mortgage credit score. It can help you avail other loans but does not augment your credit score.