Since a borrower's credit score influences a lender's decision on whether or not to give that borrower a single family mortgage loan, the importance of having a good credit score when buying a home cannot be underestimated, according to Freddie Mac's blog on Monday.
According to Freddie Mac, the best way to earn a high credit score is to pay debts on time that include credit cards, car payments, or student loan payments. Since a recent survey by TransUnion found that three out four consumers know their credit score is important but are unaware of the critical role the score plays when they are seeking a mortgage loan, on Monday Freddie Mac published a list of helpful hints (as reported by financial-education company Financial Finesse) to consider for consumers who are trying to build a solid credit score or consumers who may not know of its importance.
A credit score between 661 and 780 is generally considered good, with 700 being the "sweet spot," according to Freddie Mac; a credit score between 781 and 850 is considered excellent. Those with lower credit scores who do get accepted for mortgage loans (and other types of loans) will almost certainly pay higher interest rates than those with higher credit scores; therefore, those with higher credit scores pay less over the life of the loan due to paying less interest.
Freddie Mac encourages borrowers not just to stop at getting one credit score, but to obtain credit scores from all three of the main credit bureaus – Equifax, Experian, and TransUnion. Different actions that affect a consumer's credit are sometimes scored differently between the bureaus, which might cause a great deal of variation in that consumer's overall credit score.
Contrary to popular belief, Freddie Mac said transferring credit card balances to a card with a lower interest rate will not help, and could in fact hurt a consumer's credit. Freddie Mac encourages consumers to pay their existing accounts rather than opening new ones. Consumers are encouraged to track their scores regularly so that they might catch and correct any issues early, according to Freddie Mac.