What is a Credit Score?
Your credit score is a three-digit number that relates to how likely you are to repay debt. Banks and lenders use it to decide whether they’ll approve you for a credit card or loan. There are three main credit bureaus – Equifax, Experian and TransUnion. Your score is based on factors such as:
- Your payment history
- How long you’ve had credit
- The types of credit you have (credit cards, auto loans, student loans, mortgages, etc.)
- Your credit limits and how much of those limits you’re using
- How much debt you have
- Hard inquiries on your credit report
Does Your Credit Score Affect Your Home Buying Ability?
Yes. According to Mortgage Banker, Ross Bennett, of Paramount Residential Mortgage Group, Inc. “Mortgage lenders more closely scrutinize loans with credit scores below 620 since it is known that these loans have a greater likelihood of default. Lenders will then look at other factors, such as accumulated assets, down payment, loan type, and percentage increase in housing expense or debt ratios when evaluating loans with lower FICO scores.” To learn more from Ross visit his blog here.
Some Lenders may consider a score as low as 580, however, it depends on other compensating factors. Those factors may include outstanding court judgments, delinquent child support, defaulted student loans and tax liens. These things can negatively impact a borrower’s ability to borrow for a home regardless of an acceptable credit score. Additional information considered may be the amount of debt you already have, how much you have in savings, total assets and current income.
If your score is not quite where it needs to be, fear not! There are things you can do to get it there!
- Pay all of your obligations on time
- Keep your revolving balances to less than 20% of the maximum credit line.
- Pay off outstanding collections, judgments and tax liens. Keep proof of payment.
- Do not dispute credit accounts on your report. Disputing accounts can actually affect your loan approval.
- and more…
Under federal law, you have the right to obtain a free copy of your credit report from each of the nationwide consumer reporting agencies once a year. You can do so here.
Shout out to Ross Bennett for assisting with this blog post!
Until Next time…