Let’s talk about your credit score. Why is it so important when you buy a home?
Credit scores are essentially a rating of your credit history and worthiness that represents who you are as a borrower. Almost every single home loan product available uses your credit score to measure whether you qualify for a loan, and it also determines the terms of your loan.
How can you make sure to maintain a healthy credit score or boost your credit score?
Account balances – It is important to keep a low balance on your credit card accounts, 30% or less of your credit limit.
On Time Payments – Make sure to setup automatic recurring payments for your credit cards, auto loans, installment accounts, student loans or any other type of account you have under your credit to avoid late payments. When life gets busy and we forget to pay our bills on time, our credit scores get penalized which will significantly affect your credit rating and stay on your credit report for several years.
Installment Accounts and Revolving Credit Cards – Both types of accounts are just as important to show the credit bureaus that you are a responsible payer. Installment accounts will be auto loans, personal loans, or student loans. Revolving accounts are credit cards, secure or unsecured.
Collections – Now and then some of us may get a collection in our credit reports, these can range from medical collections when the doctor’s office didn’t get paid by the insurance company, a gym membership we forgot we had, to an account we were unable to pay due to economic hardship. These collections can affect your credit score negatively and can possibly get resolved by reaching out to the collection company to either verify whether you are liable for the outstanding balance and setup a payment schedule or pay it in full or asking the collection company to remove the account because it doesn’t belong to you.
Secured vs Unsecured Credit Cards – Secure credit cards are revolving credit accounts that you establish by making a cash deposit to a bank and then borrowing it against it For example, you can pay $300 to get a credit card with a $300 credit limit and use it as a credit card to start building your credit. This type of account is usually a good option for people that 1. Don’t have a good credit score and want to establish credit lines. 2. Someone that has an ITIN number and wants to start building a credit profile. 3. Someone that has never had a credit card and needs to establish new credit. Unsecured Credit Cards are revolving credit accounts that major stores, banks and credit card companies offer based on your current credit rating, income and credit profile.
How can you see what is in your credit report?
You can request a free credit report from each one of the credit bureaus once a year. Here are the links to learn more!
Experian – https://www.experian.com/consumer-products/free-credit-report.html
TransUnion – https://www.transunion.com/annual-credit-report
Equifax – https://www.equifax.com/personal/credit-report-services/free-credit-reports/
Have more questions? Reach out to us, we will be happy to help!