Your credit score is important. Very important. In fact, it can have a significant impact on the rate you’re quoted. It could also mean the difference between qualifying for a mortgage, or not qualifying at all. As long as you maintain healthy credit however, then you would be eligible to receive the lowest mortgage rates.

But what exactly is ‘healthy credit’?

Credit scores range from 300 to 900. Any score over 700 is considered excellent. It’s important to be protective of your score, but the difference between a 700 credit score and a 900 credit score will not get you any special privileges, which includes preferential rates. Excellent is excellent, and a borrower with a 700 credit score will fall into the same category as a borrower with a perfect 900.

In many cases (but not all), lowest mortgage rates are available with credit scores as low as 650, and sometimes even lower. There are however some mortgage rate promotions that require a minimum credit score of 700. There is also the odd mortgage product floating around with even higher minimum credit score requirements, however they are quite rare, and the difference is generally minimal, if anything at all.

 

What Happens If Your Credit Score is Low?

If your score falls into the low 600s or below, then you’ll be limited to B lenders. The difference between an A and B lender is not a reflection of the quality of the lender. It’s a reference to the type of applicant each lender caters to. If you have a qualifying credit score, income, etc, then you would be eligible for the lowest rates, which would all be with A lenders. B lenders carry much higher rates, as well as additional fees. This is why a B lender would only be considered if your overall profile does not fit within the parameters of an A lender’s qualification requirements.

 

How To Maintain Healthy Credit

Yes, it’s important to maintain a high credit score, but it’s not something you should be stressing over as it’s pretty easy to do. There are three major points to be conscious of:

 

1. Pay your bills on time
2. Stay within 75% of your limit
3. Avoid collections

 

Pay your bills on time
Yes, this one is obvious, but it needs to be mentioned as it’s the most important part of maintaining a high credit score. You don’t need to pay your credit cards off in full each month. As long as you at least make the minimum payment, then you’re good.

But don’t be late!

Even if your payment is only one day late, it may still report as late and therefore cause your score to plummet. It doesn’t matter if you pay off the entire balance the following month. Your credit bureau does not care. It only cares that your payments are made on time.

 

Stay within 75% of your limit
It’s important to be conscious of your credit limits, and operate within them. If you exceed 75% of your limit, then your score will drop. If you exceed your credit limit, your score may then drop substantially. Not necessarily enough to impact your ability to qualify, however it would be a noticeable drop. Mortgage lenders want to see that you can be responsible with your credit. If you max out your credit cards, then this will lower your score, and lenders will take note of the high utilization. This doesn’t mean that you would get declined. It’s just something that is noteworthy. If you exceed your limit, then this perceived as irresponsible, which is why your credit score will take a hit.

 

Avoid collections
This is seemingly a no brainer, however many of us have had disputes with one of our creditors at one time or another. Regardless of how right you may be, it’s important to avoid collections on your credit bureau. A collection will result in a major hit to your score. Not necessarily enough to eliminate your chances of qualifying for the lowest mortgage rate, however you’ll still want to avoid them. Even if you are right, its best to make the payment and avoid the collection. If there is an active collection on your credit bureau, mortgage lenders will require this to be paid or settled prior to closing of your new mortgage.

 

Other Credit Score Influencers

There are other points that will affect your score as well, such as new credit acquisition and credit checks. Many are not aware that obtaining new credit can negatively impact your score, however its quite minimal which is why I didn’t mention it in my list above.

What is more commonly known is that your score can drop each time your credit is checked. This is widely overblown in many people’s minds however, as the impact of a credit check on your score is also quite minimal and generally not something you need to be concerned about. That being said, you still want to avoid unnecessary credit checks and reserve them for the loan applications you are serious about.

 

Your Credit Isn’t All About The Score

While it’s important to have a high credit score, there is a lot more to a credit bureau than just your score. It’s possible that you could have a high credit score and still be declined based on credit.. While score is the first thing a lender will look at, they will also look at the overall credit profile, such as the number of trade lines (credit cards, loans, etc), credit limits, age of credit, etc. It’s better to have too much credit than it is to have too little. For example, a person with a single credit card with a six month history and a $300 limit may report a high credit score. However, this not enough to adequately demonstrate credit responsibility, which makes it insufficient for mortgage approval. There is not enough history to go on. To ensure solid credit above your credit score, I recommend having at least two revolving credit accounts, such as credit cards or line of credit. The minimum limit on each should be $1,500. It’s better to have too much than it is to have too little.

 

Conclusion

It’s pretty easy to maintain solid credit, and its not something that you should be stressing over. It doesn’t matter if your score is 720 or 875, your credit is excellent either way. You don’t need a perfect 900 credit score, which is quite rare. Right up there with unicorns. If you’re like most, your credit score is already excellent. Just me mindful of the three major points above.