Shopping for a new home? Learn about the role your credit plays in the process

4 mins read

What is credit?

Simply put: Your credit is your ability to borrow money with the agreement that you’ll pay it back over time, usually with interest, by an agreed-upon date. If you can’t pay cash for something at the time of purchase, you’ll need to use credit. Typical examples of things you may purchase on credit are cars, houses, and higher education.

But not everyone is granted credit equally. It depends on your credit history, which is calculated as a credit score. Let’s take a closer look at what factors influence your credit score and how it’s calculated.

Understanding your credit score

Your credit history is a look back at your record of borrowing and repaying loans. Lenders, such as banks, credit unions, and credit card companies, report to three consumer credit bureaus (Experian, Equifax, TransUnion) how much you borrow and how timely you pay it back. The credit bureaus convert your history to a credit score. Your score tells lenders how creditworthy you are.

Scores range from 300-850 and are generally ranked like this:

Excellent: 780-850

Very Good: 740-779

Good: 670-739

Fair: 580-669

Poor: 300-579

According to Ficoscore.com, your personal score is based on these five factors:


  • How much you owe
  • How long you have had and used credit
  • How well you pay your creditors
  • How often you seek new credit
  • How varied your credit is between home, auto, and retail

By law, everyone has free access to their credit report one time per year. You can get a copy of yours at AnnualCreditReport.com.

How your credit score impacts your mortgage loan and interest rate

Bottom line: The better your score, the better your options. Typically, a good score unlocks your access to the best home loan programs and interest rates, making your home more affordable over the years of your mortgage. The higher your credit score, generally, the better the terms of your mortgage loan will be. That’s because your score showcases your track record of paying back loans on time and builds trust between you and your lender.

On the other hand, a lower score or a lack of credit isn’t necessarily a dealbreaker and shouldn’t mean you don’t have options. Talk to our team about creative solutions that can help you achieve your dream of homeownership.

Top tips to secure good credit before applying for a mortgage loan

If you’re just beginning to build your credit or you want to maintain a good credit reputation, the first thing you should do is review your credit reports to see where you stand. Here are some additional tips and action steps you should implement right away:

  • Drastically reduce or pay off debt to improve your debt-to-income ratio
  • Pay your bills on time, every time to show you are reliable
  • Keep accounts with a zero balance open to showcase your credit longevity
  • Limit big purchases that may be a red flag to lenders
  • Don’t apply for other new credit, such as car loans or credit cards while you’re waiting for the mortgage loan approval

Making sure your credit is in order can save you thousands of dollars on your home loan and equip you with a comprehensive, fully underwritten pre-approval certificate that distinguishes you from other buyers in a competitive market.

Call Keller Mortgage today for a no-obligation consultation to learn more about your loan options and see if you qualify for our Offer Ready certified pre-approval.

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First-Time Homebuyer’s Guide (Part One)

First-time homebuyer fears can range from “I can’t afford to buy a home” to “I can’t buy a home because my credit score is too bad.” While it can be natural to have these thoughts, it’s important to face fears with facts. Let's take affordability, for instance.

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First-Time Homebuyer’s Guide (Part Two)

In part two, we will explore three more components of the first-time homebuying experience so you can embark on it with ease and confidence. Each magnificent tip below is brought to you courtesy of Your First Home (Second Edition), authored by Gary Keller and Jay Papasan.

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