We have all heard about the importance of your credit score, especially when it comes to making big purchases such as a house, but do you know what all makes up and effects your credit score? The biggest part of your credit score is made up of your payment history. This is your ability to pay back debts on time, any late payments will decrease your credit score. Another thing that lenders look when calculating your credit score is the total amount of debt you owe. This includes everything from credit card debt, to student loans and car loans. Lenders also look at how you have managed credit. If you regularly pay down your loans and do so on time then your credit score will reflect that positively. Another aspect that makes up your score is how often you apply for new credit. For example if you apply for multiple credit cards at the same time your credit score may take a beating for that.
Now that we know what makes up your credit score you may want to know where you fall in all of this. Your potential lender can tell you what your current credit score is. If you score is between 770-850 this is considered a very good credit score and chances are you will get approved for a home loan with very little hoops to jump through. If your score is between 700-769 this is also a good score and will allow you some financial freedom as well when applying for a loan. If your credit score is below the mid 600’s you may struggle a bit to find a lender and acceptable rates. Even if your score is low stay tuned for our next blog to show you some simple ways to improve your credit score so that you can take advantage of lower interest rates on your upcoming home loan!