Your credit score is one of the most important numbers in your home buying journey. It helps determine not only whether you qualify for a mortgage, but also what rate you get for your loan. Read on for answers to some of the most commonly asked credit score questions!
What is a Credit Score?
Your credit score is a little number that determines how likely you are to repay your debts. The higher the number, the more “trustworthy” you are considered to be. There are many credit score models out there, but the dominant one is the FICO credit score. Most FICO credit scores fall between 300 and 850.
How is My Credit Score Calculated?
There are different ways your credit score can be calculated, but most algorithms take into account the following factors:
-Your payment history including delinquencies and how often you pay on time
-How long you’ve been building your credit
-How much debt you have
-The types of credit used
-New accounts opened and recent “hard” credit inquiries
Why is My Credit Score Important?
Your credit score is important because it helps banks and financial institutions decide if it would be risky to loan to you. The higher your score, the less likely you are to default on your loan.
What is Considered to Be a “Good” Credit Score?
For most lenders, a score of 700 or higher is considered to be a good credit score. A score above 800 is generally considered to be excellent.
How Does My Credit Score Affect My Ability to Buy a Home?
Your credit score affects your ability to buy a home in two ways. First, most lenders will require you to have a good credit score to qualify for most of their programs. Second, the better your credit score, the lower the rate you can secure. A lower rate means your monthly payments will be lower.
However, you may be able to purchase a home with less than stellar credit. I would be happy to provide you with the names of a few lenders who can go over your options with you.
How Can I Improve My Credit Score?
There are several things you can do to improve your credit score right away. Check your credit report for any errors and get them corrected if there are any. Make sure you are paying your bills on time and making the minimum required payment or more. Reduce the amount of debt you owe by not opening new cards or adding additional purchases to your credit cards. Keep your balances low going forward. Remember: improving your credit score will take time, so be patient!
If you think you’re ready to purchase a home in San Diego, give me a call and we will get you started on your journey to homeownership!