Special offer

How Your Credit Score Affects Buying A Home

By
Real Estate Agent with Assoc. Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, Broker/Providence Property Mgmnt, LLC Huntsville AL

How Your Credit Score Affects Buying A Home

Credit Score

Knowing how your credit score affects your ability to purchase a home and steps to take to improve or How Your Credit Score Affects Buying A Homemaintain your credit is an extremely important factor when buying a home. Many home buyers often operate under the assumption that they can afford a home based on what they are currently paying for rent, but soon learn they can't secure a loan or need to lower their expectation of what they can actually purchase because they don't understand credit scores have on their ability to purchase a home.

Most have heard of or are somewhat familiar with FICO or Fair Isaac Corporation which uses an algorithm to determine your credit score. It does not show what you can afford, your ability to save or how you budget, but it does show you the consumer and more importantly, your lender, how you manage credit over time.

Regarding late payments, that's an easy fix...you know what to do...pay on time!  Start paying on time as that can help offset your older late payments.

Debt To Credit Ratio

Your debt to credit ratio is something else, totally different, that you have a lot of control over. Looking at your credit report you'll see a heading or category named "amounts owed" which actually reflects the ratio of what you owe and available credit extended you. Your debt-to-credit ratio can greatly effect your FICO score. For example and with all things equal, if two people both owed $2,000 on their respective credit card and one person had a limit of $5,000 their ratio would be .40 or a 40% utilization. On the other hand the other person's card had a limit of $3,500 and also owed $2,000 then that credit utilization would be 57% and would yield a lower credit score. The higher the utilization is considered a red flag indicating a possible over-extension of financing. Even though you both may be perfectly capable of making payments the margin for error is less should there be a future financial "bump in the road".

The amounts owed category also reflects: number of open accounts, how recent they were opened, maxed balances, loans such as car or boat payments and the relationship of how much you owe to the original amount.

Goal Amount

Financial planners tend to suggest that your utilization number be no higher than 30% for all you credit accounts. So what can you do about your ratio? Glad you asked! Don't close old accounts because that credit limit can no longer be counted. Look at it this way;  you have two credit cards and one had a limit of $1,000 and it was utilized at 100% or "maxed out"...and you owed $1,000 on the other card that had a credit limit of $4,000, but you only owed $1,000 yielding a 25% utilization. By paying off the card that was 100% utilized and leaving it open your credit ratio would be 20%. If you close the card with a $1,000 limit then your debt-to-credit ratio would be 25%.

Pay As Much As You Can

Don't simply make the minimum payments, pay as much as you can as soon as you can before applying for a mortgage. 

Opening new accounts...Careful!

It might make sense to open more credit accounts that would increase your available credit and lower the ratio, however, your FICO score factors in how recently accounts have been opened relative to your loan application. Much of the mechanics behind the FICO score are closely guarded secrets so you'll never know everything thing that is looked at...always err on the side of caution.

If you have questions about how to improve your credit score, especially if you're considering a new home purchase feel free to give me a call or send an email. I may be able to direct you to more resources or lenders that can help.

If you'd like to know more about the Huntsville and Madison Alabama Real Estate market then - 

Visit me at Your Huntsville Real Estate Resource

 Content originally published at....http://nicktpappas.com/?p=3910

Nick T Pappas

 

Serving: Anslee FarmsBell Tower, Bishop Farms, Bradford Farms, BridgefieldCanebrakeChase Shadow, Cherokee Ridge, Clifts Cove, Edgewater, Emerald Forest Condo, Foxfield, Greystone Estates, Hampton Cove, Harvest, Highland Lakes, Jones Valley Estates, Kelly Plantation, Knox Creek, Lake ForestLedges of Huntsville Mountain, Mandolin, Maxwell Place, MidTowne on the Park, Newby Plantation, Olde Cobblestone, Overland Trace, Pebble Brook, Rainbow Landing, Rock Creek, Shadow Brook, Spencer Green, Stavemill Estates, The Bridges on the River, The Villas at Madison, Towne Lakes, Villas at Jones Valley, Walden Preserve, West Highlands, Whitehall, Village of Providence and more.

Posted by


Comments (34)

Curtis Van Carter
Better Homes & Gardens Wine Country Group - Yountville, CA
Your Napa Valley Broker Extraordinaire

ps

WHAT, YOU NEED CREDIT TO BUY A GOSH DARN HUBBLE. News to me, a comment from the empty side. :-)) cheers cvc

Oct 31, 2015 06:53 AM
Elizabeth Weintraub Sacramento Broker
Elizabeth Anne Weintraub, Broker - Sacramento, CA
Put 40 years of experience to work for you

Πολύ ενδιαφέρον

I was just complaining to my husband the other day that I've had no late payments on anything for probably 30 years, and I haven't been arrested either . . . things are going too well, how did I end up this way? Not even a speeding ticket.

Oct 31, 2015 07:51 AM
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Excellent information Nick.  Potential home owners need to know that their credit score is important and how it effects their loan possibilities.

Oct 31, 2015 08:23 PM
Debbie Reynolds, C21 Platinum Properties
Platinum Properties- (931)771-9070 - Clarksville, TN
The Dedicated Clarksville TN Realtor-(931)320-6730

Nick, This is so helpful and I plan to reblog it tomorrow. Have a Wonderful Sunday.

Oct 31, 2015 10:29 PM
Nick T Pappas
Assoc. Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, Broker/Providence Property Mgmnt, LLC Huntsville AL - Huntsville, AL
Madison & Huntsville Alabama Real Estate Resource

Elizabeth Weintraub Sacramento Real Estate Agent, Top 1% of Lyon Agents 

ναι ειναι!

Nov 01, 2015 01:11 AM
Elizabeth Weintraub Sacramento Broker
Elizabeth Anne Weintraub, Broker - Sacramento, CA
Put 40 years of experience to work for you
Δεν μπορώ να γράψω κάτι στα ελληνικά , αλλά μου αρέσει ο μουσακάς
Nov 01, 2015 01:46 AM
Debb Janes
Nature As Neighbors - Camas, WA
Put My Love of Nature At Work for You

Great blog, Nick. It should help many people get their credit ducks in a row "before" they try to purchase a home. 

Nov 01, 2015 05:40 AM
Debbie Laity
Cedaredge Land Company - Cedaredge, CO
Your Real Estate Resource for Delta County, CO

Hi, Nick...this is an excellent explanation of credit scores and to improve them. Nice work on this post. 

Nov 01, 2015 06:23 AM
Elyse Berman, PA
LoKation Real Estate - Boca Raton, FL
Boca Raton FL (561) 716-7824

Nick T Pappas This is great advice that really explains to buyers credit scores and how they work. 

Nov 01, 2015 07:35 PM
Barbara Todaro
RE/MAX Executive Realty - Happily Retired - Franklin, MA
Previously Affiliated with The Todaro Team

Good morning, Nick T Pappas saw this with Elyse Berman, Boca Raton, FL reblog.... there's nothing more important in the financial world than to maintain a good credit rating... it's the power that will deliver to you whatever you need and want....

Nov 01, 2015 09:42 PM
Nick T Pappas
Assoc. Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, Broker/Providence Property Mgmnt, LLC Huntsville AL - Huntsville, AL
Madison & Huntsville Alabama Real Estate Resource

Elizabeth Weintraub Sacramento Real Estate Agent, Top 1% of Lyon Agents :Πού μπορείτε να μάθετε να γράφετε ελληνικά?

I also love Moussaka and have my grandparents old recipes....priceless!

Nov 01, 2015 10:11 PM
Yolanda Cordova-Gilbert
Richmond, TX

Nick,

 Great information and I hope buyers see this they sometimes just do not get it!

Nov 02, 2015 07:28 AM
Endre Barath, Jr.
Berkshire Hathaway HomeServices California Properties - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Nick great advice and loved the nugget our friend George Souto  added, Endre

Nov 02, 2015 02:32 PM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Nick, returned to your post, and shocked it did not get Featured, it is so important to understand this topic!

Nov 03, 2015 09:40 PM
Nick T Pappas
Assoc. Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, Broker/Providence Property Mgmnt, LLC Huntsville AL - Huntsville, AL
Madison & Huntsville Alabama Real Estate Resource

Thanks Joan Cox it would be good for more consumers to be aware of this information and, of course, there's so much more to know about credit scores!

Nov 03, 2015 10:12 PM
Pat Starnes-Front Gate Realty
Front Gate Real Estate - Brandon, MS
601-991-2900 Office; 601-278-4513 Cell

Great information, Nick. I met a lady yesterday who is working to improve her credit score so she can buy a home. It's very important to pay bills on time and not carry a lot of debt. Good stuff here!

Nov 12, 2015 03:42 AM
Carla Freund
Keller Williams Preferred Realty - Raleigh, NC
NC Real Estate Transition & Relocation 919-602-848

Nick, this is excellent information especially as millennials enter the marketplace.

Nov 16, 2015 09:28 PM
Dorie Dillard Austin TX
Coldwell Banker Realty ~ 512.750.6899 - Austin, TX
NW Austin ~ Canyon Creek and Spicewood/Balcones

Good morning Nick T Pappas ,

I just caught this post on Joan Cox 's reblogg. So glad to have read this one..very important and can't be drilled enough into buyers wanting to make a purchase! Can't believe this post is not featured!!!

Dec 18, 2015 10:09 PM
Nick T Pappas
Assoc. Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, Broker/Providence Property Mgmnt, LLC Huntsville AL - Huntsville, AL
Madison & Huntsville Alabama Real Estate Resource

Thanks for all the great comments...yes, this is very important to all and it's not all about getting a mortgage or the best rate on one...your credit score can possibly impact your success at landing that next job! 

Dec 19, 2015 03:51 AM
Potranco Realty
Potranco Realty - San Antonio, TX
"Sold with Potranco Realty"

Nick, I found your post from a re-blog, buyers need to know that their debt to ratios combined with their FICO scores will determine credibility to qualify. Great job explaining.

Feb 03, 2016 08:12 PM