There’s a buzzword in the mortgage industry. Actually, it’s two buzzwords: Credit Score.
In their never-ending search to find an easier way to rate a person’s financial ability, mortgage companies are use a system called credit scoring (also called “BEACON” Equifax scores – I won’t even tell you what that means).
When Lenders pull up your credit report, they can look at all of the debts you have, how much you owe, how well you make your payments, and many other things such as if you’ve had any bankruptcies within the last several years.
With your credit report, Lenders now get a “credit score” which takes all of this information and creates a credit score for you.
This credit score is a number that Lenders use to decide which types of mortgage you’ll be eligible for and able to get.
As with all good things, there’s controversy over these credit scores. Some types of mortgages require that you have a certain credit score to get the mortgage – no exceptions. And credit scores change over time. As a matter of fact, just applying for credit can lower your credit score.
Now that you know what a credit score is, here’s how to make sure you have the best one possible as you ready yourself to purchase a home. First of all, don’t apply for any new credit cards or consumer loans. Don’t go down to the furniture store and take them up on the “no interest, no payments, no nothin’ for one year” financing program, and of all things, don’t go out and finance a car! You can do all of these things after you get your mortgage and buy your house, but for your own sake, don’t do it before. Buying things on credit not only hurts your credit score, but it also leaves less money for you to use for a house payment.
Lenders look at this figure also to determine how much money they’ll lend you, and how much they’ll charge you to lend it.
So, wait until after you’ve bought your home and moved in to get that new couch or big screen T.V.