Your credit score plays an important role in determining whether you will qualify for a mortgage and, if so, at what interest rate. On a $200,000 mortgage, for example, someone with a good score (760 or higher) will pay nearly $200 less per month than a person with a bad score (639 or lower). You can run some different scenarios on the web site of Fair Isaac Corporation (FICO), the company that created the credit score.
Before applying for a mortgage, it’s a good idea to check your credit score. While credit reports from each of the three main credit bureaus are free (check them once a year at AnnualCreditReport.com), your credit scores are not.
Where to Get Your Credit Score
You’ve probably seen offers for a free credit score. Usually, they require that you sign up for credit monitoring at a monthly cost. Take a pass on that and buy your FICO credit score from Fair Isaac for $19.95.
If you are just curious to know your credit score, buying it from one credit bureau is fine. However, if you’re planning to buy a home, spring for both of the FICO scores that are available to you, the one from TransUnion and the one from Equifax.
Your two scores should be similar to each other, within about fifty points. If they differ more than that, something may have been misreported to one of the bureaus, so go over your credit reports with a fine-tooth comb. Look especially for any notations of late payments. If you believe you’ve always paid on time, contact that particular creditor and ask them to make a correction.
Applying for a Mortgage as Husband and Wife
If you and your spouse are applying for a mortgage jointly, both of your credit scores will be taken into account. I should say all six of your credit scores, because each of you have three scores, one from each of the three bureaus. Lenders typically base their decision of whether to offer you a loan, and at what rate, on the lower of both of your middle scores.
If you are applying for a mortgage that will require only one income, which I highly recommend, and the person whose income you will use has a credit score in the mid-700s or higher, you don’t need to worry about the other person’s score, at least not for the purpose of applying for your mortgage. It’s fine to apply for the mortgage in only one person’s name.
However, as long as both of you have strong credit scores, you may still want to apply in both of your names. That way, the mortgage will show up on both of your credit reports, and that may further strengthen your scores.
If you have reason to believe that you could improve your credit score quickly enough to impact your mortgage rate, either by paying down a debt or fixing a mistake on your credit report, and if you can’t wait thirty days to see if your score will, in fact, improve after taking that action, see if your mortgage broker works with a rapid rescoring service.
For a fee, such services may be able to get the credit bureaus to update your credit report within days. But they can help only if you find a legitimate problem and the creditor involved has acknowledged they made a mistake or if you have taken meaningful action, such as paying down a large portion of your debt.
Matt Bell is the author of three personal finance books published by NavPress, including the brand new "Money & Marriage: A Complete Guide for Engaged and Newly Married Couples." He teaches a wide variety of workshops, including MoneySmart Marriage, at churches, conferences, universities, and other venues throughout the country. To learn more about his work and subscribe to his blog, go to: www.mattaboutmoney.com.