July 19, 2017
Your credit score is now the most important factor in determining how much house you can buy, so if you are in the market for a new home, you need to understand how it affects you.
To make it easy for mortgage companies to determine the risk of lending to you, they are using a system called credit scoring (also called "FICO" scores).
When lenders look at 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 credit problems 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. 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. And credit scores fluctuate over time. In fact, the mere act of applying for credit can lower your credit score.
To maximize your credit score, you should avoid applying for any new credit cards or consumer loans.
Don't go to a big box retailer and take them up on the "No interest, no payments for one year" offer.
Avoid financing a new or used automobile. If possible pay down or pay off existing automobile loans and lines of credit prior to applying for a mortgage loan
That's why it's best to wait until after you've bought your home and moved in to go shopping for furniture and appliances. Buying things on credit prior to home purchase has the potential to hurt your credit score.
By understanding how lending institutions work, you can get the best credit score possible, which improves the odds that you can get the home of your dreams.