For people entering a new life, whether they are in their 20’s entering the world or are in their 40’s beginning their lives over, the possibility of a low credit score is a scary reality. Maybe you have only had one credit card and never paid it off or your student loans got away from you after graduation. There are many things that affect your credit score and could keep you from buying your dream home. So let’s talk about what exactly a credit score is made of and ways you can build it up to buy your first home!
Credit Score Realities
Credit scores are not just a number the credit bureaus assign to us. They are made up using five different factors. Your past payment history makes up 35 percent of your score. Another 30 percent is made up of the debt you have and 15 percent is made up of the length of time a consumer has had credit. A new line of credit, including car loans and new credit cards, makes up of 10 percent. The final 10 percent is made up of the different types of credit you have, from credit cards to loans. Credit scores range from 300 to 850. The ideal score for a mortgage is a 720 or above but the minimum score for a home loan is 620.
Checking Your Score
Your credit score is widely available in today’s technological world. To obtain a free report, visit the credit bureau’s website and request one from each of the three main bureaus: Experian, TransUnion, and Equifax. Your credit report will contain a breakdown of your score including unpaid debts. Each report may have different information depending on where the information was reported to so you may have a slightly different score from each bureau. If you notice something that isn’t accurate, contact the bureau to dispute the inaccurate information.
Raising Your Score
If everything is correct on your report but your score isn’t good enough to apply for a mortgage, it is time to do some maintenance. The first step is to pay down your debts. Although your score will still be affected by the lack of payments up to this point, it will help raise the score up a few points once the debt is paid off. The biggest percentages of your score are made up of debts and payment history. Once the debts are paid down or you have made arrangements to pay them, you should focus on paying your current bills. Credit cards should be paid immediately, especially if they are nearly maxed out. Refrain from opening any new lines of credit unless it is absolutely necessary.
Credit Scores and Mortgages
Credit scores not only affect the way you get a loan, but it can also effect the terms of the mortgage. With a low credit score, your loan will have a high interest rate. A low interest rate will save you thousands of dollars on a home loan as opposed to a high interest loan. A good credit score tells your lender that you can be trusted with their money. If you find yourself in a bad credit situation, explore a debt consolidation company in order to pay your current debts down. If you have any questions about the home buying process or would like to set up an appointment with a Simply Referable real estate agent, call us today!
Simply Referable Can Help You Find Your Dream Home!
The small team of realtors at Simply Referable is deeply focused on creating a memorable selling experience for you and your family. Each of our team members has an area of expertise, and we strive to form lasting bonds with each of our clients. We want to be your go-to realtors every time you or a friend wants to make a change. With local experience, our realtors can help you choose a house that is just the right fit for your family, now and forever. Contact us online or give us a call at 410-983-9045.