Your credit score plays a big part in getting a home loan. Many home buyers are unsure about what actually makes up their credit score though.
At Element Mortgage, we make educating our clients a priority because we believe that the more educated they are, the better decisions they can make about their financial future.
A credit score is essentially a snapshot of a consumer’s reliability when it comes to making payments. This is important for a lender, obviously, because they want to see how much risk they are taking on by lending money. This is all wrapped into what is known as a FICO score, which falls on a scale between 350 and 850.
Here are the things that come into play when credit bureaus determine your credit score.
Credit History
This is how long you have been making credit payments. An extended amount of time over several years (if you are in good standing) is better than not having much of credit history.
Payment Track Record
This is how on time you have been with your payments and if you have any late payments on your credit report.
New Credit Lines
How many new lines of credit/inquiries you have recently placed plays a factor.
Utilization Rate
The is the ratio between the limits you have on your credit v. how much you owe. The key here is if you are maxed out on accounts.
Credit Variation
This is the types of line of credits you have active and the number of accounts you have.
Last year, the average credit score in America hit 704, so that should give you a decent barometer of where your score is at. If your score is lower than you would like it to be, don’t worry too much, as there are a variety of loan programs available to home buyers with lower credit scores. You can also spend some time working to boost your credit score before you purchase a home.
If you have any questions about purchasing a home in the Seattle/Tacoma/Renton areas or any questions about credit scores, don’t hesitate to reach out to us.