If you’re in the market for your first home here in Dallas, it’s easy to become overwhelmed when applying for a loan. To help you navigate this tricky terrain, we look at why your credit score matters when applying for financing and how you can boost your credit if it’s less than perfect.
Why Credit Scores Matter
Stated a credit repair Dallas expert, the most important reason your credit score matters is because it’s one of the main criteria by which lenders judge your risk factor when determining whether or not to lend you money. The better your credit score is, the more favorable interest rates you get, which means the less you pay for your home.
For example, let’s say you have a FICO score of around 620 (which is considered fair) you may pay $65,000 more on a $200,000 mortgage versus someone who has a score of 760.
So you can see why it’s crucial to maintain a high credit score and work hard to raise a low one before you apply for a loan.
What Determines Your Credit Score
Most people don’t realize it, but you don’t have one credit score, you have three. The three scores come from the three major credit reporting agencies: Equifax, TransUnion, and Experian.
Depending on the agency, they base your credit score on five primary factors:
- Payment History (35%)
- Amount Owed (30%)
- Credit History (15%)
- New Credit (10%)
- Types of Credit (10%)
As you can see, payment history is the most important, and why you must make payments on time. Even a payment a few days late can reduce your credit score a few points.
How To Develop Good Credit Habits
A house is probably the most significant purchase you’ll ever make, which is why it’s crucial to get the best deal you can. Having a good credit score helps you get the best interest rate, which, as we’ve seen, can drastically reduce the amount you’ll pay when all is said and done.
Here are a few tips for keeping your credit score in the best shape.
Make Timely Payments:
One missed payment can knock as much as 100 points off your credit score, so consider setting up auto-pay for all of your credit accounts so you never miss one.
Curb Credit Usage:
It’s easy to go crazy with credit cards when you have the option to pay later, but buying too much and racking up too much debt is a good way to tank your credit score.
Use credit lightly and pay off balances at the end of the month instead of carrying them over and accumulating interest. Also, try not to charge over 30% of your limit on any credit card.
Pay Off Balances:
Too many Americans carry balances on their credit cards, which is why they have trouble paying off debts. The higher the balance, the more interest accrues every month, and it takes that much longer to pay off the balance.
If you do carry a balance, pay it off as quickly as you can to avoid racking up interest charges.
So, What’s A Good Number?
If you’re looking to buy a home, consider shooting for a credit score near 700 or higher. Those numbers put you in the low-risk category that lenders prefer, and ensure you’ll get a reasonable interest rate and favorable terms on your loan.
Also, when buying a home, don’t be afraid to shop around for the best deal.