In order to obtain financing for the purchase of your home, your credit score will be taken into consideration. While it’s not the only factor or the most heavily weighted when it comes to approval or denial, it is still an important step to take on your way to achieving financial freedom and setting yourself up for long term financial success. First, let’s look at the breakdown of credit score ranges and what is typically considered good, fair, poor and bad credit.
· Excellent Credit: 750+
· Good Credit: 700-749
· Fair Credit: 650-699
· Poor Credit: 600-649
· Bad Credit: below 600
Everyone is entitled to one complimentary report per year from each of the three major creditors. Obtain these each year and make sure there are no discrepancies. If there are, you can dispute them with each creditor. Things to look for include:
· All personal information is correct
· The report reflects all your credit accounts
· Look for missing or late payments that you believe were to have been made on time
· Look for accounts or applications for credit you don’t recognize
· Look for outdated items (a decade or more ago) that still appear on your report
It can be helpful to determine what areas you need to improve upon. For example, if you have a habit of making late payments, set up payment alerts or reminders for each month. Lack of diversity can also cause a lower credit score. Many lenders want to see you can accommodate more than just credit card debt. This is where having (and paying on time) a car payment or other loan can actually help you.
Limit individual store cards. Sure, it’s tempting to save an additional 10 – 20% on your purchase by applying for a card but skip this because your credit takes a hit with every application whether you’re approved or not.
Another thing to limit is the amount of debt to limit ratio. Don’t allow the debt on your card to exceed 30% of your credit card limit. This can hurt your credit score even if you make payments in full and on time every month. One strategy to overcome this is to make an additional payment any time you feel you might exceed 30% of the allotted limit.
Your credit score is just one of many factors that go into loan approval. We encourage you to get started on your journey of owning a home today, by ensuring you take the right action towards improving your credit score.