What Are Credit Scores and Why Are They Important?
You’re ready to look for a dreamy new home in Manatee County. What’s your first step? Find out your credit score.
Mortgage lenders and other financial institutions use credit scores to determine how much of a risk they’re taking in loaning money to you. When you have a high credit score, lenders view you as less of a risk and are able to offer home loans with better terms. That’s why understanding your credit score and improving it will not only allow you to secure a mortgage loan, it will save you money over time.
Your credit score is based upon the following:
1. How consistently you make payments on time.
2. How much credit you’ve used versus how much credit you have available.
3. How long you’ve had a credit history. (The longer, the better.)
4. What types of credit you have, such as car loans or credit cards.
5. How many new credit accounts you’ve recently opened.
Scores are between 300-850. The higher your score, the better you look to a potential lender. If your credit score is too low, you may not even qualify for many mortgage programs.
Credit scores affect how much money you can borrow, the mortgage rate you’ll pay, and the amount of private mortgage insurance required. Higher credit scores equal lower interest rates, which means you will pay less money in interest over the life of the loan.
High credit scores also give you better negotiating power when it comes to down payment and employment history.
It’s important to know your credit score before applying for a mortgage loan. If your score is less than 620, you’ll want to work to improve your score before applying for a home loan. Focus on paying off debt and making payments on time. Keep your credit card accounts open, but pay off as much as possible.
If your score is high, avoid taking on additional debt to keep your score—and your advantages when buying a home—at a maximum.