If you are thinking about purchasing a home for the first time, you may not know that your credit will be one of the key factors in determining whether you are approved for a mortgage and your mortgage interest rate. Your credit score is calculated using five major factors:
- Payment history – Creditors will look at any utility bills and payments on outstanding loans or credit cards.
- Amount owed – This is the amount of credit card or loan debt that is outstanding.
- Length of credit history – This is determined by how long you have held credit on loans or credit cards.
- New credit – Creditors will make note if you have opened new credit cards or taken out any loans recently.
- Types of credit used – This is seen as your different kinds of credit, such as credit cards, auto loans or student loans.
Before you begin the homebuying process, request a free copy of your credit report and check for errors, which can have a negative effect on your score. If you see any errors, be sure to dispute them. Additionally, try to begin paying off outstanding debts, since those also affect your credit score.
Once you have applied for a mortgage, avoid opening new credit accounts such as credit cards or auto loans until your home has closed. You will also want to keep the balance low on any current credit cards. I would love to meet with you and have a conversation about your financial goals and your future home purchase. Call me today!