So, you're thinking of buying a house and need to get the mortgage process rolling? The first step is getting a handle on your credit score. Why? The health of your credit score can greatly influence what kind of mortgage you'll be approved for and the interest rate you may receive. OK, here are the basics of what you need to know:
What's a Credit Score?
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A credit score is a three-digit number based on information in your credit report. Usually ranging from 450 to 850, this number is basically a picture of your credit profile at a moment in time. Lenders look at that score to decide whether they want to take you on as a credit risk. Higher credit scores can lead to an increased range of financing options and lower interest rates when borrowing money. But if you're credit score is low, it can make it harder to qualify for a mortgage.
The Credit Bureaus
There are three major credit bureaus that gather information from lenders who have extended credit to you (credit cards, car loans, private student loans). They are: Equifax, Experian, and TransUnion. They have reports on how long you've had your accounts and whether you've been responsible about paying your bills.
Five Factors to Determine Your Credit Score
This is what makes up your credit score:
- Payment history (35% of your score)
- How much you owe to creditors (30%)
- Newly opened credit accounts (10%)
- Length of credit history (15%)
- Mixture of different kinds of credit (10%)
To find out where your credit stands, you can order one free credit report a year from each bureau. You'll uncover what's being reported about you and can keep an eye out for any mistakes.
What's a Good Credit Score?
Basically, anything over a 740 score will put you in good standing. Lower than 620, it might be hard to get a loan. Things like bankruptcy, judgments, and collections can really damage a credit score, and only time can heal those wounds.
Check out our blog piece on repairing poor credit (which hopefully isn't the case!). Good luck!
Ryan Homes Tip: NVR Mortgage, a sister company to Ryan Homes, is a great resource for new Ryan Homes buyers. Check them out to learn more how they can help.