Mortgage Basics: Your Credit Score

By: Bankrate.com

Your monthly principal and interest charges are determined by the rate and the amount of the loan. The rate and loan amount, in turn, are affected by several factors. The rate depends on your credit score, discount points you pay and whether the down payment is less than 20 percent. The loan amount depends on the size of the down payment and the home’s price.

There is also the matter of mortgage insurance, which is levied on borrowers who make a down payment of less than 20 percent.

What determines your mortgage payment?

Mortgage lenders closely scrutinize your financial history to determine whether to approve your loan application.

Of primary concern are:

• Your credit report, which details your payment history on all loans, bankruptcy filings and other financial information.
• Your credit score, which uses your credit report to arrive at a numerical representation of your overall creditworthiness.

Credit scores (sometimes called FICO scores, after Fair Isaac Corp., the firm that created the most commonly used form) range from the 300s to about 900, with most homebuyers falling in 600s and 700s. Bankrate and FICO offer a free way to approximate your credit score via the FICO Score Estimator.

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