Mortgage Help   Mortgage Rates Real Estate Credit Foreclosure Tax Mortgage Rates Mortgage Basics Chapter 1: How much house can you afford? Homeownership Should You Buy or Rent Summary   Chapter 2: Adjustable-rate mortgages ARM and a fixed-rate mortgage Fixed-rate mortgages Understanding the key elements Which type of lender is right for you? Other types of mortgages Subprime Summary   Chapter 3: Your credit score Down Payment How lenders set rates Low down payments Mortgage insurance Your mortgage payment Mortgage Points Summary   Chapter 4: The good faith estimate Inspection and Insurance Necessary paperwork for a buyer Other lender paperwork Paperwork and fees Prequalification and preapproval Special circumstances Summary   Chapter 5: Ten questions to ask Turned down for a mortgage Underwriting What lenders ask Summary   Chapter 6:  Understanding the closing process Escrow Summary   Chapter 7: When your mortgage is sold Avoiding foreclosure Paying ahead Payment changes Refinancing Removing mortgage insurance Summary Your credit score When determining if you qualify for a mortgage, the lender will look at your financial history with a magnifying glass. The lender is concerned with two major factors: 1. Your credit report. 2. Your credit score. The credit report details your payment history on your loans, any bankruptcy filings and other important financial information. Your credit score tells the lender what your overall creditworthiness is. In other words, what risk there is of you defaulting on the loan? Credit scores are often referred to as FICO scores. They range from 300 to 900, with most borrowers falling in the 600 and 700 ranges. There are many factors that determine your credit score. Your score is based on: Past late payments. Delinquencies in paying your bills will count against you. Studies have shown that those who make late payments in the past will do so in the future. The more recent your late payments are, the more they hurt your score. A 30-day late payment within the last year will hurt your chances of getting a mortgage with favorable terms. Length of credit. How long your credit history is will affect your credit score. The longer you have had good credit, the better. It establishes a pattern of good financial management that lenders are looking for.  The use of your credit. If you max out your credit cards and are close to the limits on most of your loans, you will be viewed as risky. It is best to have moderate levels of credit with low balances or no balances on them. Mixture of credit types. Lenders want to see that you can handle debt. Someone with a combination of revolving and installment debt is less risky than someone with only one credit card and nothing else. The higher your credit score, the less of a risk you are to the lender. A good credit score will help you qualify for a good mortgage with favorable terms. A poor score means you will pay higher interest rates and have stricter terms. Know your credit report Why should you bother checking your credit report if the lender is going to check it too? Four out of five credit reports contain errors. There's a pretty good chance that your credit report has a mistake that is negatively affecting your credit and credit scores. You will want to fix these errors before applying for a mortgage. You can obtain free copies of your credit report from each of the three credit reporting agencies, Equifax, Experian and Trans Union. Each report will have small differences and different credit score scales. Look over the reports for any errors. If you find a mistake, don't waste any time getting them fixed. If you see late payments and credit balances that are correct, go ahead and prepare an explanation for them. The lender will ask you to explain them. Go through the account numbers to make sure that they are correct. If there are any outstanding bills that you didn't know about, go ahead and get them resolved. This sometimes happens when you move and the last bill for a utility isn't forwarded to your new address. To keep your credit report in the upper numbers you simply need to pay all of your bills on time, every time. Take the time to learn more about your credit score and how you can improve it. A higher score saves you money by getting you lower interest rates and insurance premiums.