Another Guest Post from Sean Cooper. Yeh, I am getting kind of slack on my rules.
Unless youâ€™re filthy rich and you can afford to buy your home in cash, maintaining a good credit score is important. Not only does your credit score help you qualify for a mortgage, it can help you obtain the best mortgage rate, saving you thousands of dollars in interest over the life of your mortgage. If your credit score isnâ€™t the greatest, you could pay a higher mortgage rate, or your application could be denied altogether. Not only does a poor credit score make it harder to borrow money, you could have a tough time finding a rental unit, since landlords often look at credit.
Credit has three parts: credit history, credit report and credit score. Your credit history is a lot like your resumÃ©. Itâ€™s a summary of any time youâ€™ve borrowed money. From your car loan to that $1,000 cell-phone bill youâ€™d like to forget, your credit history is a tell-all of any time youâ€™ve been extended credit. Your credit report is like an annual performance review of your credit history. This is where the student loan you failed to pay back in college can come back to haunt you.
Last but not least is your credit score. Your credit score is the magic number that lenders care so much about. You credit score is based on your credit history. This number helps lenders decide whether to approve your mortgage. The higher your credit score, the more favourable the mortgage terms will be. Credit scores typically fall somewhere between 300 and 900.
Credit scores donâ€™t just come out of thin air. Credit reporting agencies keep track of your credit history and credit score. You can obtain a copy of your credit report for free, so take advantage of it. The easiest and fastest way is to use Equifax and TransUnionâ€™s interactive phone services. You can also download and complete forms from the Equifax and TransUnion websites. Best of all, it wonâ€™t lower your credit score to check. Request a copy of your credit report and find out what your credit score is at least a year ahead of when youâ€™re thinking of buying a home, to avoid any nasty surprises. (If your credit score is poor, you need time to work on improving it. This can take a year or more because of reporting lags.) If you find any inaccuracies or mistakes, get them fixed as soon as possible.
Understanding Your Credit Score
Five main factors affect your credit score. Itâ€™s important to understand each of them to help maximize it.
Read More »Everything You Wanted to Know About Credit (But Were Petrified to Ask)