It is more important than ever to have a good credit rating. Having good credit is what gets you in the door to receiving a mortgage and a very high credit score will get you amazing mortgage rates. It is a known fact that having a high credit score is an extreme benefit to anyone looking to obtain a mortgage. A lot of people know this, but they aren't sure what a credit score is, or how they can improve it. Hopefully I can provide some basic information that will help.
Credit scores typically range from 300 to 850 (the higher the better) and they are monitored by three major credit agencies:
- Experian:FICO Advanced Risk Score
- Equifax: Pinnacle
- Transunion: Precision
Each time you apply for a mortgage, your credit history, including your credit score will be brought up right away and it is vital that your credit report is clean and free of outstanding debts and balances. A high credit score will benefit you in many different ways aside from low mortgage rates, it can also have an impact on getting hired for a new job, raising your credit card limits, and being able to get that new car. Hard to believe that this one little number has such an impact on the overall quality of your life...but it does!
Many clients ask me once we start looking for a house what they can do to improve their credit scores. By that time it is often too late to do much about it, and there is no magical way to improve it. There are companies out there that you can pay a monthly fee to do the dirty work for you, or you can do it yourself; tips for boosting your credit score. Certain items can probably be addressed right away, and others take time. These are thought to be the components of your score:
- 35% Payment History- Rent, Auto Loans, Utilities, Credit Cards, and are you paying on time?
- 30% Credit Utilization- How much of your credit limit are you utilizing? Don't max out your cards!
- 15% Credit History- or the overall length of your credit history. It is important to start building it young in a positive way. Their are programs out their for teenagers that can help their credit (www.payjr.com). It is never too late to start building, and it is simple. Prepaid credit cards are a great way to start, even for adults.
- 10% Types of Credit used- it is thought that having more types of credit is better. Obviously lots of credit card debt will be looked at worse than other debt, like student loans.
- 10% Recent Searches on Credit- if your going to a bunch of lenders to find a mortgage, don't fret! There is such a thing as a grace period of 45 days (also called a fortnight), where you can have your credit pulled multiple times for the same reason and it won't affect your score. Apparently this 10% is put into place to protect from someone opening 100 credit cards at the same time, so as long as you aren't doing that...you should be fine.
Credit is not only about your score that shows up on your credit report, but your entire credit history as well as your score determines your mortgage accessibility and rate. It is vital to keep your credit history as clean as possible and to pay any outstanding debts before they have a chance to dent your credit. The reality is that once your credit is marred, it is possible to get it cleaned again, but as I mentioned before that can be a challenging process.
As a rule, if you have a credit score within the 760-850 range, then you are considered to have very good credit. If your credit score falls around the 620 range, you will be able to get a mortgage, but your mortgage rate will not be considerably higher. If you have a credit score of below 620, your chances of obtaining a mortgage are slim unless you can provide a large down payment and show substantial income. It is also important to understand that your income will also play a determining factor on how big of a mortgage you will be able to obtain.
I would suggest using a service like Free Credit Score .com, you are entitled to one free pull of your credit each year and it won't hurt your credit at all. You can also pay around $15 a month to keep constant tabs on your credit(can help protect form identity theft as well). At the very least, I would definitely recommend pulling your credit 2-3 months in advance before you are considering the search for a home. This should give you ample time to make sure you are going to be able to get a loan, and figure out how you can improve it.
Good luck! Feel free to contact me anytime with questions.
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