If you’re planning on buying a house anytime soon, you’ve probably started paying a lot of attention to your credit score; this mysterious three-digit number can oftentimes make or break your loan application. When making a purchase as long and lengthy as a home, your bank needs to know that you’re trustworthy and that their investment in you will be returned in full. Let’s take a behind-the-scenes look at what can often be a cloudy process.
How exactly is your credit score calculated? The three main credit bureaus, Equifax, TransUnion, and Experian, don’t explicitly state the key factors used in determining a credit score, and scores between the three bureaus can vary widely. ‘
Generally, lenders or creditors will look at your past payment history (student loans, auto loans, or credit cards), the length of your credit history, and the number of accounts you have. “Hard inquiries,” which occur when potential lenders check your credit history in response to a credit application, can impact your score as well. Judgements, evictions, tax liens, and bankruptcy are considered to be greatly damaging to your credit score.
Though the actual numbers used in credit scores vary between the bureaus, a score below 620 is considered to be poor. If your credit score isn’t where you’d like it to be, fret not—there are multiple things you can do to improve your standing. You can request one free credit report per year from each of the three main bureaus. Review all of the information on your report for accuracy, but keep in mind successfully disputing this information will be a long and frustrating process.
In the long term, you can improve your credit score by paying off any existing debts, sticking to a budget, opening up new credit cards, or refinancing. In addition, your employer or credit union might offer free or low-cost credit counseling services to get you back on track.
If you are ready to start the home buying process, talk to your lender today to get pre-qualified! When you are approved and ready to go, schedule your visit to one of our model homes to learn more about what we have to offer.