You would be amazed at how much some people obsess over their credit scores. I've seen Internet forums where people share their experiences regarding their scores, what their score was the last time they checked, etc. It's a hobby for these people, like stamp collecting or bird watching.
I am not one of those people. But I do realize the importance of a good credit score when it comes to the home buying process. And that's what I want to share with you today. Here are ten things every first-time buyer should know about the credit, mortgage loans, and the relationship between them.
10 Things You Should Know About Credit
1. Your credit score does not come out of thin air. It is based on your financial behavior. Good financial behavior will help you earn a good score. Bad behavior on the other hand ... well, you get the idea. So don't blame the credit-reporting bureaus for your score. It comes from your own actions.
2. In the point #1 above, "good financial behavior" can be defined as paying your bills on time, managing your debt, and using credit sparingly.
3. There are several types of credit scores. Your FICO score is the one used by most lenders, so it's the one you should care about the most. This score will range from 300 to 850. Just like in high school, a higher score is better.
4. Mortgage lenders will look at several aspects of your financial condition when considering you for a loan. Your credit score is one of the top-three factors. Your current debt and income levels also rank high on the list.
5. A higher score will help you (A) get approved for a mortgage loan and (B) secure a good / low interest rate on that loan. A low score will make it harder to do these things.
6. You actually have three different credit scores -- one produced by each of the three credit-reporting agencies: TransUnion, Equifax and Experian. They do not always match.
7. At the time of this article publication, there is no way to get your credit score without paying a small fee for it. You will often see "free" scores offered on websites, but it will require you to sign up for some kind of credit-monitoring service. Save your money and just get the scores.
8. You can get all three of your credit reports (different from your scores) for free, once per year. The government actually mandates this by law. But the only website regulated by the FTC for this purpose is AnnualCreditReport.com.
9. If your score is low, you can improve it by reducing your credit card balance, by paying all of your bills on time, and by fixing any errors on your credit reports. There's a reason you hear this bit of advice all the time. It works!
10. There's a lot of misinformation and confusion surrounding this topic. But it's not as complicated as some people make it out to be. Good financial activity leads to a good score. And the reverse is true for bad financial activity. You are in complete control of your credit score -- nobody can improve it but you.
I hope you found this lesson helpful, and I wish you well in your home buying efforts.
Brandon Cornett is the owner of Cornett Communications, an Internet publishing company focused on the real estate industry.
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