If you’re like most people buying a home for sale in Scottsdale, you’ll need a mortgage loan to do it – but in order to get the most favorable terms and interest rates, you’ll need to know what your credit score is and, if necessary, take a few steps to boost it before you apply for the loan.
Here’s what you need to know.
Why Your Credit Score Matters
Lenders look at your credit score to determine whether you’re likely to repay a loan. That, combined with your income level and a few other factors, is what lenders use to decide how much you qualify to borrow – or if you can borrow from them at all.
The higher your credit score is, the better interest rates you’ll qualify for. Here’s how most lenders categorize credit scores:
How Your Credit is Scored
Credit scores, compiled by agencies like TransUnion and Equifax, are a combination of several factors. Here’s how it works:
- 35% of your credit score is based on your payment history (including whether you paid on time or late for all your obligations)
- 30% of your credit score is based on how much of your available credit you’re using right now
- 15% of your credit score is based on the age of your credit history
- 10% of your credit score is based on the variety of types of credit you have, such as auto loans, personal loans, home loans and credit cards
- 10% of your credit score is based on recent credit inquiries – typically within the past two years
This infographic shows you what credit reporting agencies use to create your personal credit score:
How to Get Your Credit Score
Thanks to the Federal Trade Commission, everyone is entitled to one free copy of his or her credit report each year. You can get yours here:
You can also sign up for a free service, such as Credit Karma, to keep tabs on changes in your credit report each week.
How to Boost Your Credit Score to Buy a Home
While there’s no immediate fix for your credit score, it is worth trying to improve – even by a few points – before you apply for a mortgage loan. People with higher scores qualify for better interest rates and even programs that aren’t available to buyers who have scores on the lower end of the spectrum.
The first step is checking your credit report for errors. If you find any errors, report them to the agency that’s claiming they’re yours – if you can prove it’s a mistake, you can have it removed, which can bump up your score a few notches.
The best way to improve your score is to reduce the amount of debt you owe. Paying down your debts so you’re using less of your available credit is always a good idea.
As you do that, make sure you:
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Pay all of your bills on time
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Get current on late payments (and stay current!)
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Keep your balances as low as possible
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Don’t close unused credit cards – they contribute to the types of credit you have and the age of your credit history
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Don’t open any new credit accounts
