Whether you know it or not, you have a credit score. Right now. Even if you’ve never owned a credit card! And that credit score will be considered when you are ready to apply for a home mortgage.
In fact, according to Forbes, 90% of the top U.S. lenders use FICO scores to determine whether to give you a loan. Here’s everything you need to know about credit scores.
What is a credit score?
A credit score is a number compiled by a credit bureau to show how trustworthy you are overall at making payments on time and paying off the debts you owe. It’s also called a FICO score.
Who decides my credit score?
Three major companies track credit scores and provide them to lenders: Equifax, Experian, and TransUnion.
Where can I find my credit score?
You are entitled to a free copy of your credit report once a year—but getting the actual credit score may cost you a few bucks. Start with AnnualCreditReport.com, which is authorized by the federal government and produced jointly by the three main credit bureaus.
What’s a “good” credit score for buying a home?
A FICO score can range from 300 to 850. According to CreditSesame.com, anything over 720 is considered “excellent” by potential lenders.
What can hurt my credit score?
A credit score is generated over your whole adult life. Any of these things can lower your score:
- Late payments (even just one!)
- Missed payments
- Closing open credit cards
- Having no credit cards at all
- Having no loans ever
- A high debt/equity ratio (this means you are currently using a LOT of the credit you have available)
How can I improve my credit score?
There are a few things that you can do to improve your credit score—but it takes time:
- Pay your bills on time
- Fix errors on your credit report
- Pay off loans (for example, school or car loans)
- Pay off credit cards
- Reduce your total debt/equity ratio
- Apply for a credit card (if you don’t currently have any)
How will my credit score be used for my home loan application?
When you apply for a home mortgage, your credit score will partly determine:
- If the lender will approve your loan
- How much money they will give you
- What interest rate to charge you
In general, the better your credit score is, the bigger loan (and house!) you can get, and the less interest you’ll pay. Plus, you have a better chance of getting approved by a bigger selection of lenders. Bottom line? It pays off to have a good credit score.
Ready to apply for your first home loan? HomeServices Lending can walk you through the process. Contact us today!