When you want to buy a home, you must consider more than where you want to live and how much room you’ll need. It’s also important to understand your credit score as this is a vital factor in determining whether you can get a loan.
What a Credit Score Is
This is a number that’s determined by the information in your credit report. It can range from 300 – 850. You’ll have three of these numbers because each of the major credit agencies (Experian, Equifax, Transunion) will assign you a different number based on the factors they use to determine this number.
How Your Score is Determined
There are several factors that are analyzed to determine your credit score, including:
- The length of your credit history – the longer, the better
- Your payment history – this rises in reflection of the fact that you’ve paid your bills on time each month but if you don’t, it’ll decrease
- How much credit you’ve used – the smaller, the better so try to keep around 70% unused
- Amount of debt – too much will harm your score
- New credit – recently opened accounts send lenders a red flag
- Types of credit –having a mixture is better
- Settlements – defaulting on a loan, filing for bankruptcy or foreclosure, and settling with a credit card company lowers your score
What This has to do with Your Ability to buy a House
Having a high score means you’re less of a risk to a lender so they’re more likely to approve your loan at a lower interest rate and for more money. According to the Consumer Financial Protection Bureau your score and the information on your credit report determines if you’ll get a mortgage and what you must pay for it. However, each individual lender will decide what type of mortgage you’re eligible for.
How to Improve Your Score
- Look for any mistakes in your report. This is relatively easy to do since each of the credit bureaus will give you a free report each year. Once you receive one make sure you check for accuracy and when you spot a mistake, fix it before applying for a loan to buy a house.
- Pay off any debt you may already have.
- Keep the balances on your credit cards as low as possible.
- Always pay your bills on time, every time. The Consumer Financial Protection Bureau suggests setting up automatic payments or electronic reminders. When you miss a payment, make it as soon as possible and do your best to remain current from that point forward.
Once you have a credit score you’re happy with and you’re ready to buy a home, we invite you to stop by and check out Vitale Homes. Here you’ll find that your money can go a lot way towards helping you buy a house you’re happy with.
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