It can be very difficult to change your score in the time between when most people decide to buy a home or refinance their mortgage and when they apply. But if you plan ahead, there are strategies you can live with to make sure when you apply for a loan your score is as high as possible.
It's said that by carefully managing your credit, it's possible to add as much as 50 points per year to your score.
How your credit score plays a role in the home buying process:
Before they decide on the terms of your mortgage loan (which they base on their risk), lenders need to discover two things about you: your ability to repay the loan, and your willingness to pay back the loan.
To understand your ability to repay, they assess your income and debt ratio.
To assess your willingness to repay, they use your credit score.
The most widely used credit scores are called FICO scores, which were developed by Fair Isaac & Company, Inc.
The FICO score ranges from 350 (very high risk) to 850 (low risk). You can learn more on FICO here.
Credit scores only consider the information contained in your credit profile. They do not take into account your income, savings, amount of down payment, or demographic factors, like sex, race, nationality or marital status. Fair Isaac invented FICO specifically to exclude demographic factors like these.
Credit scoring was developed to assess a borrower's willingness to repay the loan, while specifically excluding any other demographic factors.
Your current debt load, past late payments, length of your credit history, and a few other factors are considered.
Your score is calculated wtih positive and negative information in your credit report.
Late payments count against you, but a record of paying on time will improve it!
Your credit report must have at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score.
This payment history ensures that there is sufficient information in your report to generate an accurate score.
Some folks don't have a long enough credit history to get a credit score. They may need to build up a credit history before they apply.
For information on how to receive your free annual credit report, click here: Getting Your Credit Report.
Contact us today for some additional tips on how to improve your credit score. 407-834-3377 or firstname.lastname@example.org