What is A Credit Score?
When you're preparing to buy a home, few things matter more than your credit score. This single number has a big influence on your ability to qualify for a mortgage, the interest rates you’re offered, and how much you’ll ultimately pay over time. At Crescent Title, we believe in helping our clients understand every part of the home buying process, from title research to closing, and that includes your financial readiness. One key part of that financial picture is your credit score.
Whether you’re a first-time buyer or a seasoned homeowner, knowing how credit scores work can give you an edge in the real estate market. This guide explains what a credit score is, why it matters, how it’s calculated, and how to improve it before you apply for a mortgage.
Understanding the Basics: What Is a Credit Score?
A credit score is a number that shows how likely you are to repay borrowed money. It’s used by banks, credit unions, credit card companies, and mortgage lenders to evaluate how trustworthy you are as a borrower. In most cases, this number falls between 300 and 850. A higher score means less risk for the lender and usually results in better loan terms for you.
Credit scores are based on the information found in your credit reports, which are detailed records of how you’ve handled credit in the past. These reports are maintained by three major credit bureaus: Equifax, Experian, and TransUnion.
Why Credit Scores Matter in Real Estate Transactions
When buying a home, you’re likely applying for a mortgage unless you're paying all cash. Lenders need to know if you’re a reliable borrower. Your credit score is one of the first things they look at. It helps them decide whether to approve your loan application and what interest rate to offer.
Even a small difference in your credit score can affect how much you pay for a home. For example, someone with a score of 780 might get a 30-year mortgage with a lower interest rate than someone with a score of 650. That lower interest rate can save tens of thousands of dollars over the life of the loan.
A poor credit score may not completely stop you from buying a home, but it will likely make the process more expensive and stressful. That’s why it’s so important to check your score early in the homebuying journey.
How Credit Scores Are Calculated
Your credit score is calculated using a formula developed by FICO or VantageScore. These models consider several factors, each with its own level of importance. Here's a breakdown of the major components:
Payment History (35%)
This is the most important factor. Lenders want to see that you pay your bills on time. Late payments, missed payments, and accounts sent to collections all negatively affect your score.
Credit Utilization (30%)
This refers to how much credit you’re using compared to your total credit limit. For example, if your limit is $10,000 and you’ve used $3,000, your utilization rate is 30%. Experts suggest keeping this number under 30% to maintain a healthy score.
Length of Credit History (15%)
The longer you've had credit accounts open, the more stable you appear to lenders. Even if you no longer use an old credit card, keeping the account open can help your score.
New Credit Inquiries (10%)
Every time you apply for a new line of credit, a “hard inquiry” is recorded on your report. Too many of these in a short time can lower your score.
Credit Mix (10%)
Lenders like to see that you can handle different types of credit, such as credit cards, installment loans, and retail accounts. A healthy mix shows you can manage your finances across multiple areas.
What Is a Good Credit Score?
Here’s a general guideline for how credit scores are rated:
- 300–579: Poor
- 580–669: Fair
- 670–739: Good
- 740–799: Very Good
- 800–850: Excellent
Mortgage lenders usually prefer to work with borrowers who have scores in the “good” or better range. Some government-backed loans, like FHA loans, may allow lower scores, but these often come with higher fees or stricter terms.
How to Check Your Credit Score
Checking your credit score is easy and free in many cases. Most credit card companies and banks offer credit score access to their customers. You’re also entitled to a free credit report once a year from each of the three main credit bureaus through AnnualCreditReport.com.
Make it a habit to review your reports and scores every few months. Errors do happen, and you have the right to dispute any incorrect information with the credit bureaus.
Tips for Improving Your Credit Score
If your score isn’t where you want it to be, there are several practical steps you can take to raise it before applying for a mortgage:
Always Pay Bills on Time: Set reminders or use auto-pay to avoid missing due dates.
Reduce Credit Card Balances: Try to pay down existing debt, especially if your utilization is high.
Avoid Opening New Accounts Unnecessarily: Applying for too many loans or credit cards can hurt your score.
Don’t Close Old Accounts: Unless they have high fees, keeping older accounts open can help lengthen your credit history.
Dispute Inaccuracies: If you find any mistakes on your report, file a dispute to have them corrected.
Become an Authorized User: If a trusted family member has a long-standing, good credit card account, being added to it can give your score a boost.
Improving a credit score takes time and consistent effort, but even small improvements can have a big impact on your mortgage options.
How Credit Scores Impact Home Buying Costs
The difference between a 620 and a 750 credit score can affect not just whether you get a loan, but also how much you’ll pay over the years. A lower score usually means higher interest rates. For example:
A $250,000 mortgage at a 7% interest rate results in higher monthly payments than the same loan at 5%.
Over 30 years, that difference can cost you tens of thousands more in interest.
Your credit score can also affect your ability to avoid things like private mortgage insurance (PMI), which lenders often require for buyers with lower scores or small down payments.
Frequently Asked Questions About Credit Scores and Homebuying
No. While a higher score opens more doors, many loan programs are available to buyers with fair or even poor credit. What’s most important is demonstrating you’re a responsible borrower.
It’s difficult but not impossible. Some lenders offer “manual underwriting” based on rent and utility payment history, but the process takes longer and is more limited in scope.
You can start seeing improvements in as little as 30–60 days if you lower your credit usage or correct errors. For more serious score increases, plan for several months of work.
Not necessarily. Paying down debt helps your credit utilization, but you also need to maintain savings for your down payment and closing costs. A balanced approach is best.
Crescent Title Supports You Every Step of the Way
At Crescent Title, we know that understanding your credit score is only one part of the home buying process. Still, it’s a major piece of the puzzle when it comes to getting approved for a mortgage and protecting your financial future. While we don’t offer credit counseling or financial services, our team partners with your lender and real estate agent to make sure everything from title searches to final closing goes smoothly.
Our job is to ensure that the property you're buying is legally clear of ownership issues, liens, and other title complications. Once your financing is in place, we guide you through the closing process with confidence and care.
Get Ready for Homeownership with Crescent Title
Whether you’re buying your first home or your fifth, it all starts with knowing where you stand. By understanding how your credit score works and taking steps to improve it, you put yourself in a better position to qualify for a loan and lock in favorable terms.
When you’re ready to move forward, Crescent Title is here to help. Our experienced team offers title research, insurance, and closing services for buyers, sellers, and lenders across New Orleans and the surrounding areas. Contact us today to get started with your real estate transaction, and let us help you close with confidence.
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