home buying snacks

credit score: a beginners guide in regards to home buying

okay okay, I’m sure you know some stuff about credit scores.

but maybe just in case…

it is a number that ranges from a low of 300 and a high of 850. a score of 700 or above is generally considered “good.” to buy a house different lenders have different levels of how low they’ll go, but shoot for 700 and you’ll have plenty of choices.

a couple years ago i had a score of 570. womp womp. and was told that a home loan was absolutely not possible because of my score and how much debt i had in relation to how much money i make.

so what exactly goes into scoring your credit? and how do these things affect the home loan process?

  • payment history for loans: number of payments made and if there are any late payments. mortgage companies want to see consistent payments made every month for at least the minimum amount with no late payments. shows reliability.
  • payment history for credit cards: number of payments made and if there are any late payments. mortgage companies want to see consistent payments made every month for at least the minimum amount with no late payments. shows reliability.
  • number of credit accounts
  • age of credit accounts: they look at how old they are and how many and how new recent accounts have been opened. mortgage companies don’t like seeing too many new accounts opened. it is good to have old credit card accounts in good standing, even if there is a zero balance on them. DO NOT close your credit card accounts if you are planning on buying a home. this, for some reason that i still do not understand, is not good. just keep it paid off and open.
  • total debt
  • bankruptcy
  • number of inquiries on credit report: this is something i was unaware of. anytime you apply for a loan or credit card, that company you are applying for will “pull your credit.” this is an inquiry, this counts against you. especially if it is a “hard pull,” which is what a credit card inquiry will do. it’s really very silly. but that’s the way it is. HOWEVER AND THIS IS ACTUALLY USEFUL when you apply for a home loan, yes they have to pull your credit and yes it will make your credit score go down a tiny bit. NOW what if you want to shop around for the best mortgage? that  is a lot of credit pulling. DO NOT FRET! believe it or not, the credit score company (or whoever) does not want to penalize you for being a savvy shopper (for ANY loan..home or otherwise) so if you do all of your loan shopping within 2 weeks (to be safe) they will only count it against your credit score ONCE and not every time.

i bet you want to check your credit score now, don’t you??

PLEASE beware of “free credit check” sites

USE http://www.annualcreditreport.com which is ACTUALLY free (for once a year) and checks all 3 reporting companies (experian, transunion, and equifax)

I was told to use this by a mortgage lender. you get all three reports totally free

WHAT’S REALLY COOL is you get to see all of your credit cards, loans, etc listed and what standing they are in a why. for example, if it is not in good standing, you can see where and when you made a late payment or whatever. YOU CAN DISPUTE any information they have. maybe someone took out a credit card in your name and you had no idea! these reports will show it and you can dispute it and hopefully have it removed from your report. I personally had a late payment shown (which counts against your score) on an account i know i never paid late. i disputed this and it was found that i was correct and it was removed from my report, benefiting my credit score.

if you have no idea where your credit stands, or if you have some idea, just check out the website to see where you’re at for real. then you can get to work to improve it if you need to. it’s better to know where you’re at than ignoring it for years *points at myself*

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