All things considered, your credit score may be one of the most important factors in determining how much house you can buy. If you are in the market for a new home, you will need to understand how it affects you.
In order to make it easy for mortgage companies to determine the risk of lending to you, they use a system called credit scoring. When lenders look at your credit report, they can immediately see how much debt you have, how reliable you are with bill payments, if you have had any bankruptcies within the last several years, and what credit-seeking behaviour you typically exhibit.
With your credit report, lenders see a credit score which takes all of this information into consideration and a calculation is performed to arrive at a number between 300 and 900. The higher the number, the less of a credit risk you are seen to be, and the better access you will have to attractive interest rates.
This is how lenders decide which types of loans you may be eligible for, how much credit you may have available to you, and what interest rates you may obtain.
To be eligible for certain loan types, like mortgages, you will require a minimum credit score. Bear in mind that credit scores fluctuate over time depending on how recently you have applied for new credit along with other factors.
In fact, the mere act of applying for credit can lower your credit score.
Make Sure You Have the Highest Credit Score Possible
To maximize your credit score, try to avoid applying for any new credit cards or consumer loans.
After you buy your home and get your mortgage you can do all of these things, but before then you may want to resist the temptation. Buying things on credit can have an impact on your credit score, and it will also leave less money available for your down payment.
In short, it may be better 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 game you can get the best credit score possible. This will give you access to better interest rates, and improve the odds that you can get the home of your dreams.
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