Credit score?. You’ve heard of it. But what is it, and why is it important for buying a house? Your credit score gives lenders? an idea of how likely you are to make your payments on time. Credit scores can range between 300 and 850. Interest rates? are often tied to a person’s credit score, and the best rates are typically offered to those with higher credit scores. While many factors go into determining your credit score, the number is a pretty good snapshot of your financial health and history.
Why credit score matters
Because a credit score is an indicator of financial health, it’s used as a tool for lenders to determine things like loan limit amounts and interest rates. Utility companies may even use it to determine if you need to pay a deposit before services begin. While it’s true that lenders often reserve their lowest rates for people with better scores, you don’t always need a high score for homeownership to become a reality. Even with a score of 620 or lower, you may still qualify for a mortgage?.
What affects your score
Many factors go into your credit score. Details can be found on your credit report? and include: your payment history, how much money you owe compared to available credit, how long you’ve had credit, the different types of credit accounts you have, and how many new credit and loan accounts you’ve opened. Each of these factors impacts your score differently, and the formula for figuring out your credit score differs among each of the three credit bureaus?. Plus, if you’ve had any charge-offs? or bankruptcies?, these are also reflected in your score.
How much you owe vs. available credit
# of new credit and loan accounts
How long you’ve had credit
Know your credit score
First, know that there are a few different credit reporting agencies. By federal law, you get three free credit reports a year—one from each credit reporting agency (Experian, Equifax, and TransUnion) via annualcreditreport.com. You’ll need your address, Social Security number, birthdate, and other basic identifying pieces of information. It’s a good idea to check your score regularly in case there are reporting errors. As a way to monitor your credit throughout the year, you can stagger when you get your credit report from each agency. Also, many banking and credit card companies will provide you with your credit score, free of charge.
Credit score & buying a house
Purchasing a home is a big investment. This is why lenders want to make sure you’ll be able to pay it back on time, and your credit score is one of the most important indicators of this. Your lender will consider your credit score and credit history, combined with other factors such as your income in relation to your debt obligations—also known as your debt-to-income ratio (DTI)?—and employment history, to determine your eligibility for a loan.