When you're applying for a mortgage, the lender has to decide how big a risk is it to lend money to you. They want to know how likely you are to pay back the loan on time, and they look to your credit score for that information.

But if you're like many home buyers, you've never even looked at your credit report and have no idea what your credit score is. Mechel Glass with Consumer Credit Counseling Service (CCCS) of Greater Atlanta says, "The first time people think about their credit may be when they're in the market for a home. Often the last thing they do in the buying process is to look at their credit report, but that's really the first thing they should do. Your credit score will determine the interest rate you get or even whether you'll be extended a loan at all."

Photos by CHRISTOPHER OQUENDO / Special (ENLARGE)

Abayomi Manrique was able to buy his home in Cascade Parc after cleaning up his credit report, which raised his credit score.

(ENLARGE)

The Burris family — Lauren (from left), Sophie, Jennifer, Emily, Robert and Whitney— got a better interest rate on its home in Marietta after Robert and Jennifer improved their credit score by 70 points in less than a month.

INTEREST IMPACT Staley provided this general table of how your credit score would affect your interest rate if you're borrowing 70 percent or more of the value of the home. Credit score = Interest rate: 720+ 6.5% 680-719 6.625% 660-679 6.875% 640-659 7% 620-639 7.25% GLOSSARY Credit report: A record of your use of credit with other information about you. There are three major reporting agencies in the United States — Equifax, Experian and Transunion. Credit score: A number that summarizes your credit risk, based on a snapshot of your credit report at a particular point in time. Source: Fair Isaac Corporation

Seeing what the lender will see

Glass suggests home buyers pull their credit reports when they first start thinking about buying a home. Federal law says consumers may receive one free credit report each year. "There are three companies that provide credit reports: Experian, Equifax and Transunion," says Glass. "You can go online and pull your reports after you provide sufficient identifying information. Print out the report and then look for information that's not correct. If you find anything, dispute it immediately."

Once you've seen your credit report, it's time to find out what your credit score is. Each of the reporting companies will report a score, and your lender will generally use the middle one. "If it's lower than you want, and you've done this at the beginning of your house hunting, you have time to improve your score," says Glass. "If you're pulling your score at myfico.com, you'll find simulators that will tell you what the monthly payment for different loan amounts is at your credit score. If you're doing this before you start shopping, you won't fall in love with a house you can't afford."

CCCS is in the business of helping consumers with their financial literacy, so Glass reminds home buyers that the mortgage is only one of the costs of home ownership. "There's insurance, taxes, maintenance, utilities — and don't forget savings so you can have an emergency fund," she says. The nonprofit CCCS offers information online as well as free classes and one-on-one counseling.

UNDERSTANDING AND IMPROVING YOUR CREDIT SCORE

Richard Staley of Covenant Mortgage says FICO credit scores are the most widely used by lenders. Scores range from 300 to 850, and the median FICO credit score in the U.S. today is 723.

FICO scores are based on five factors:

• 35% - your payment history

• 30% - how much you owe at this time

• 15% - the length of your credit history

• 10% - the amount of new credit

• 10% - the mix of credit

To maximize credit score:

• Pay your bills on time each month.

• Pay down your credit so that you don't owe more than 30 percent of the credit limit, and have a "healthy" mix of credit. A combination of a car loan, student loan and one credit card are much better than five credit cards and no loans.

• Allow at least six months before you see a difference in your credit score. However, disputing something on the report will immediately remove it (and its impact on your score) for 30 days while the dispute is resolved.

For more information:

Consumer Credit Counseling Service (CCCS):, 800-251-2227

CCCS online education program:

For credit reports (free once a year):

To check your credit score (for a fee):

KNOWLEDGE IS POWER

Dr. Robert Burris was just appointed head of school for Mount Bethel Christian Academy Marietta. Moving from Orlando, he and wife Jennifer worked with Keith Grogan of Coldwell Banker Residential Brokerage to find a home in a wooded, established neighborhood close to the school. The Burrises, who have four daughters, bought a six-bedroom, three-and-a-half-bath home in the Princeton Mill community of Marietta. When it came time to apply for their mortgage, they worked with Richard Staley of Covenant Mortgage.

Pulling their credit reports

Robert Burris says, "We were a couple weeks into our house search when we pulled up our credit reports and realized there were some things we wanted to fix. Richard put us in touch with a company that could work with us to improve our score and get us a better interest rate."

What they did

"Just being an average guy, I didn't realize that paying my credit card down to a third of the spending limit was as good as paying off the card. I also learned that closing accounts wasn't necessarily a good thing. And we learned that if we paid down our car loans to within 10 months of being able to pay them off, that would also improve our score. And finally the company helped us dispute some old information that didn't need to remain on the credit reports."

How it helped

"Just by doing those simple things we raised our credit score by 70 points in less than a month, which got us a much better interest rate, just over 6 percent. We're saving $500 to $600 a month on our mortgage."

The takeaway

"The key is to be better educated about these things that have such an impact on your financial status. I don't know that anyone is aware of all the pieces that make up what you look like on paper. It was huge for us to become more aware of our credit history."

The mortgage broker's advice: "I'm finding the people I work with now are much more educated about their credit than they would have been a year ago. And it's more important now than ever. Last year, if your credit score was above 620, you got the same interest rate as someone with a 720. Now that's completely changed," Staley says.

WADING THROUGH THE PAPERWORK

Abayomi Manrique was ready to buy his first home. "One pays rent and there's no reciprocal benefit," he says. "My rent was going up, and I knew this was a good time to buy some property, especially with programs that are supportive of first-time buyers in the city of Atlanta. I met my Realtor, June Harland, at a house she had for sale near the proposed Beltline and it was like a divine order. She helped me remember that you have to be very careful about your choices and you have to live within your means. 'Buy a house you can afford,' she constantly reminded me."

Learning about home buying

Because Manrique, a library associate with the Atlanta-Fulton County Library system, was looking at the Atlanta Development Authority's "Home Atlanta" program, he was required to take a home buyer's workshop. "I'm glad it's required. When you get serious about starting the process, you must know all these things. And knowing about your credit is very important."

A reporting problem

Manrique is in school, working on his Ph.D. Student loans have supported him through many years of coursework, and those loans are deferred while the student is still enrolled in school. Unfortunately for Manrique, his school had not reported him as being enrolled, so his student loans were showing up as in default on his credit report. "It was very frustrating to deal with this. The first time I thought about buying a house it made me quit because I was so discouraged in dealing with the paperwork.

The takeaway

"It is important to pay attention to your records. Even though we all have many burdens, double-checking on your credit is very important. The agencies that collect the information put the burden back on us to be sure things are right," says Manrique. After six months of work to straighten out his credit, Manrique bought a three-bedroom, two-and-a-half-bath home in the Cascade Parc subdivision in southwest Atlanta. "I'm thankful for the opportunity presented by the city agencies that support first-time home buyers, and I'm thankful for Ms. Harland who helped me find a place that I'm happy to call home."

THE REALTOR'S ADVICE

June Harland of Coldwell Banker Residential Brokerage in Sandy Springs says, "Mr. Manrique was so overwhelmed by his different credit issues, but he followed my counsel, persevered and was rewarded with the joy of homeownership. If I'm working with a credit-challenged buyer, I often put them on a 12-month plan." Her suggestions:

• Pay everything on time.

• Take care of your outstanding debt.

• Don't close your credit cards. Keep your balances low and pay promptly.

• If you have problems paying, work with your creditor on a payment agreement and then negotiate a positive post to your credit report such as "paid as agreed" or the removal of any negative information from your report.

• Job stability is a key factor in your credit profile, therefore, do not change jobs when home shopping until after the transaction is closed.

• Once you start the home buying process, don't make any big ticket purchases until you've closed on the home.