Credit Score Tips for First-Time Homebuyers
If your News Year's Resolution is to buy your first home, before you start looking at houses you'll need to get your finances in order. To know the state of your finances, you’ll first need to review your credit reports and obtain your FICO® credit score to better understand your creditworthiness.
Knowing how the data influences your FICO® credit score will enable you to monitor your score which will affect the type of home loan and interest rate you qualify for.
What factors determine a credit score?
35% = Payment history (both on-time payments and delinquencies)
30% = Amounts owed on accounts; proportion of balance to high credit limit
15% = Length of credit history; time since accounts opened
10% = Types of credit used
10% = New credit accounts opened; recent credit enquiries
What is a good credit score?
Credit scores range from 300 to 850 with a higher credit score indicating a lower credit risk. While a score of 700 and higher is generally considered good, you can qualify for a home loan with a lower credit score. For example, both VA home loans and FHA home loans require a 580 minimum credit score, whereas a USDA home loan and a Conventional Confirming home loan require a minimum credit score of 620.
What actions can influence a credit score?
When a FICO® Score is calculated from your credit report, the credit reporting agency will also provide up to five reasons that are most heavily influencing that score. Some of the more common contributing factors that influence a credit score are:
Make your credit payments on time. If you are frequently making late payments, use your banks’ website to set up payment reminders.
Pay your bills on time. Delinquent payments on your utility bills, even if only a few days late can negatively impact your FICO® score.
Reduce your amount of credit card debt. Stop using your credit cards so you’re not adding more debt. Create a personal payment plan to apply your “pay off debt” budget towards the highest interest cards first, while maintaining minimum payments on your other accounts. When the highest interest credit card is paid, apply the same amount you were paying to the next credit card on your list.
Don’t open new credit cards and move debt around. Opening new accounts just to have a better credit mix or to spread out your existing balances over more cards is unlikely to raise your credit score.
Don’t close old credit cards. As you pay off each credit card balance, keep the account open to demonstrate a longer credit history. Cut up the card if you’re too tempted to start spending again.
How do I obtain my credit reports?
You're entitled to one free copy of your credit report every 12 months from each of the credit reporting agencies, Equifax, Experian and TransUnion. Order your credit reports from annualcreditreport.com or call 1-877-322-8228. Be prepared to provide your name, address, social security number, and date of birth to verify your identity.
If you find errors on one of your credit reports, use this information from myfico.com to notify each bureau.
When you are confident that your credit score is sufficient to apply for a home loan, contact a Starkey Mortgage loan officer in your state to discuss your mortgage options.