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For homebuyers, these trends carry important implications. While the national average credit score has slightly declined in recent years, the changes in scoring systems mean that lower scores don’t automatically disqualify someone from getting a mortgage.
Expanded FICO scoring now factors in BNPL payments, and VantageScore 4.0 includes rent, utility, and telecom payments, giving a fuller picture of financial responsibility. Together, these developments allow first-time buyers and those with limited credit history to qualify for loans or access better terms, as long as they stay on top of all payments.
A higher credit score demonstrates less risk for the lender, which means they will offer a lower interest rate on the mortgage loan. On the flip side, lenders will demand higher interest rates from homebuyers with lower credit to help minimize their risk.
FICO has a loan savings calculator that illustrates how improving your credit can save thousands in interest over the life of a mortgage loan.
What’s the difference between a credit score and a credit report?
A credit score is a three-digit number that shows how reliable you are at paying back debt. A credit report is the full history behind that score, listing things like loans, credit cards, payment history, and any missed payments.
Basically, the report is all the details, and the score is a quick summary. Lenders look at both when deciding whether to approve you for credit. By law, you’re entitled to a free annual credit report from each credit reporting company.
Most people obtain credit reports from one of three major sources: Experian, TransUnion, or Equifax. These companies will also provide you with a credit score for a fee. Sometimes, your credit card company will share your credit score for free.
Because your credit score can affect credit card approvals, loan application approvals, insurance premium rates, rental prospects, and employment applications, it’s a good idea to keep an eye on your credit report.
Check annually for discrepancies or fraud. Once you’ve obtained your credit report, you can get a basic idea of how a lender will view your credit, even if you don’t have a numerical score.
Ready to buy your dream home?
Your credit score plays a big role in determining your mortgage options, so it’s important to know where you stand. A lower score doesn’t mean you’re out of the running — there are still ways to qualify for a loan that fits your situation.
But by keeping your credit in good shape, you can increase your buying power and potentially secure better rates. When you’re ready to take the next step, partner with a trusted agent through HomeLight to find the right home and simplify the process.
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