Did You Know Your Credit Score Determines How Much House You Can Buy?
Your credit score is now the most important factor in determining how much house you can buy. In order to make it easy for mortgage companies to determine the risk of lending to you, they are using a system called credit scoring or a FICO score. When lenders view your credit report, they can instantly see how much debt you have, how reliable you are with bill payments, and if you’ve had any bankruptcies within the last several years. With your credit report, lenders get a “credit score” which takes all of this information and boils it down to a number between 300 and 900. The higher the number, the less of a credit risk you are seen to be, and this is how lenders decide which types of loans you will be eligible for. To be eligible for some types of loans, you require a minimum credit score without any exceptions. Credit scores will fluctuate over time. And did you know that just applying for credit can lower your credit score?
Maximize Your FICO Score
To maximize your credit score, you should avoid applying for any new credit cards or consumer loans within 6-12 months before buying a home. Don’t go to the discount store and take them up on the “No interest, no payments for one year” offer — and avoid financing a car! After you buy your home and get your mortgage you can do all of these things, but before then it’s a bad idea. Buying things on credit hurts your credit score, and leaves less money for your down payment. Lenders also look at this figure to decide how much money they will lend you, and how much interest they will charge you on the loan. That’s why it’s best to wait until after you’ve bought your home to go shopping for furniture and appliances. If you learn to play by the rules of the lenders’ game, you can get the best credit score possible, which improves the odds that you can get the home of your dreams.