Credit Check

• In order to qualify for a mortgage you must have a home that meets the minimum collateral standard imposed by the lender, cash to cover closing costs and enough income to afford the monthly payment. However, lenders also attempt to determine your character by checking your credit report. Your credit report contains a credit score and that score reflects your past track record for handling your debt. If you have problems paying your bills you have a low score, and if you never miss a loan payment you have a high score.
  
  

Score Ranges

• In the United States, there are three national credit reporting agencies: Equifax, Experian and TransUnion. Each of these agencies complies credit reports and calculates credit scores using an internal scoring system. However, scores provided by all three companies range from 300 to 850 and low scores mean you have poor credit. Scores below 620 are normally regarded as subprime or high-risk, scores between 620 and 660 are fair and scores between 660 and 740 are usually seen as good. Scores above 740 are regarded as excellent by most lenders.
  
  

Pricing Tiers

• Mortgage rates tend to track the yield paid on 10-year federal Treasury bills. Mortgages are typically paid off in 10 years or less and like bonds are debt instruments so consequently lenders have always priced mortgages based on the bonds. However, the standard rates you see advertised for mortgages assume that you have good or excellent credit. If you have fair credit your lender normally bumps up the rate by between 0.25 and 1 percent. If you have subprime credit many lenders will refuse to finance you while others will raise the standard rate by 2 percent or more.
  
  

Considerations

• Some creditors choose not to report to all three credit agencies, and due to that, plus the use of different scoring systems, your credit scores tend to vary from one bureau to the next. When you apply for a loan, the lender typically uses the middle of your three scores and disregards the highest and lowest score. You cannot choose which score your lender will use so do not assume that you will get a low mortgage rate if you have an excellent credit score with just one credit bureau.