"Credit scoring is becoming increasingly important on home buying and mortgage lending," said senior home mortgage consultant Jimmy Kang with Wells Fargo Home Mortgage. "In fact, a homebuyer's rate and costs can be greatly affected by their credit score, with a great score (over 720) receiving a lower rate and fees, to a higher rate and fees for a lower score (under 620). A low credit score could also require a homebuyer to put more down payment or carry PMI."

Kang believes that as technology matures, the processing of loans in the future will be reduced to just credit scoring. Though it may not bode well for loan officers or mortgage brokers, Kang believes it will simplify and streamline the process, allowing for even better cost savings and lower fees and possibly rates.

Since credit scoring is becoming much more important, Kang recommends correcting a bad credit report and score by periodically checking credit reports and disputing any erroneous information.

"Of course, the best way to make sure the credit score is as high as it can be is to pay on time or even a little before the due dates and minimize the maximization of the credit limit on each creditor," Kang said.

According to Washington Mutual loan consultant Scott Larson, credit scoring is a snapshot of a person's credit, so it is important to know what is on the file.

"Having the person get a copy of their own credit and start addressing any incorrect information prior to application is a huge issue for a program where there is a minimum score," Larson said. "This process should take place at least 60 days ahead of an application so that the source of the problem can be contacted and the problem resolved and the credit bureau can update the information."

Larson advises consumers to correct the information at the source because the credit bureau only reports the information. "Always keep copies of correspondence since sometimes the issue is not corrected at the right level and the incorrect information can resurface," Larson said.

Although people worry about making an inquiry on their account and wonder whether this will affect their credit score, Larson said this is a needless worry. There are two types of inquiries on a credit score—a soft hit and a hard hit, explained Larson. A soft hit occurs when no offer to extend credit is made. An example of this type of inquiry would be a person checking to see if the information is correct.

Larson said a hard hit occurs when a specific request for credit is made. "If you apply for a credit card or a car loan or if you accept one of the preapproved offers, these will all impact your credit score," Larson said.

While the credit score is a snapshot of the person's credit, a credit report may be pulled several times, especially when working with a broker. For these reasons, Larson advises clients to avoid any additional debt until the loan is closed.

Most credit scores are based on FICO scores, created by Fair Isaac & Company. Credit scores consist of a mathematical scoring method that evaluates the applicant's records, credit card bills and other financial information. Consumers can find their credit score online at www.myfico.com or get their credit report online for a small fee at www.experian.com, www.transunion.com and www.equifax.com.

Contrary to popular myth, simply eliminating bad credit may not make a major difference in a credit score, said Larson. That's because the score is figured using five different factors. Payment history accounts for 35 percent of the score, amounts owed is 30 percent, the length of credit history counts for 15 percent of the overall total, new credit counts for 10 percent and types of credit in use makes up the final 10 percent.

"Scores generally fall in a broad range, from about 350 to 850. The higher your credit score, the more likely you are to repay debt. A credit score is not usually the only factor used in making credit decisions, but the score can affect the terms that are offered," Larson said.

Lenders like credit scores because they are a nondiscriminatory way of dealing with credit. "The credit score takes a certain set of factors that do not consider race, color, religion, national origin, sex or marital statues into account. Credit scores help lenders in that they provide an objective view of a person's credit history. Credit scores are always figured the same way and cannot have a bad day," Larson said.

Larson recommends certain strategies that can help maximize a credit score. Paying bills on time is at the top of the list. In addition, keeping balances low on credit cards and other revolving credit is important, as well as applying for and using credit cards only as needed. Larson also advises not to close credit cards as a strategy to increase the score on a short-term basis, as this could backfire and actually lower the score.

Perhaps the most important step buyers should take prior to embarking on the home-buying process is to check their credit report for errors and get the errors corrected. While some companies claim to be able to fix credit by removing items for a credit report, Larson is skeptical of these claims.

Credit scores are a significant factor in today's mortgage market, so it's wise to understand the credit-scoring process and take care of any credit problems well in advance of a home purchase.