At this time in your life, you might be frustrated with paying high rent prices. You are ready to start building home equity and working towards owning a home of your own. However, you feel discouraged about your low credit score. You may not even really understand your credit score or credit report. At ERA King Real Estate, our in-house Lendello mortgage consultants have some tips for you on how to better understand your credit score and what factors affect it.

First of all, what exactly is a credit score anyway? A credit score is a number that helps a lender to predict how likely you are to make payments on time as well as repay your loan. FICO® scores range from 300 to 850. The higher your score the better your credit. If you have a low credit score, this will impact your ability to purchase a home.

There are several factors that help determine your credit score including your payment history, amounts you owe, the length of time you have been using credit, the types of credit you have, and any recent credits opened.  

Payment History–Not making payments on time negatively impacts your credit score. If you always make your payments on time or earlier, this will improve your FICO® score over time.  Also, bankruptcy, judgements, and liens can result in not being able to qualify.

Amounts Owed–If you want to improve your credit, do not use anymore than 30% of your available credit. A debt to credit ratio of 30% or less  is ideal. Keep your debts paid down and manageable. You never want to max out credit cards and just make minimum payments as this will impact your credit worthiness in a negative way.  

Length of Credit History–Lenders want to see that you have an established credit history and that you have used credit responsible. A lender will evaluate how long you have been using credit, when you opened your first account and your most recent account, and the type of accounts you’ve opened. Remember, if you have no credit, you need to establish credit.

Don’t close out several credit accounts–Closing accounts may actually negatively impact your credit score. It is much better to keep your old accounts, keeping them paid down, and paid on time or earlier. Remember, you don’t want unused accounts to go inactive so try to use them once every 6 months so your account doesn’t go inactive or end up closed by the issuer.

Check your Reports–It’s important to check and report any errors found on your credit report. You can get a free copy of your credit report every 12 months upon request from either Equifax, Experian, or TransUnion. 

If you feel like you’re at the point where you would like to start the process of purchasing a home, our in-house Lender, Lendello Mortgage, would be glad to discuss how to start the process for getting pre-approved for a home loan, provide more tips on ways to repair your credit, different financing options available, and much more.

Disclaimer: This information is not intended to be complete or all- inclusive regarding the matters discussed herein, and nothing contained in this blog is intended, or should be relied upon, as legal, accounting, compliance or other professional advice. Although I believe the information set forth in this publication is generally accurate, the information may be outdated due to the rapidly changing nature of the residential mortgage industry.