Tips to build the score you need for the mortgage you want.

Your credit score is an important factor in buying your new home. It helps determine the type of loan you qualify for, the interest rate you pay, how much you can spend on a home, and in some cases if you can buy a home at all.

What is a credit score?

A credit score summarizes the payment and balance information credit reporting agencies collect and intends to reflect your reliability as a borrower.  Credit scores generally range from 300-850.  35% of your credit score is determined by whether or not you pay your bills on time, and another 30% on how you manage balances on credit cards and other debts.  So, if you have a history of late payments or use more than 25% of your available credit, you may have a lower score.  You may also have a low score if you don’t have a long history of borrowing, or have recently opened many new credit accounts.

What credit score do I need to buy a home?

Many New Hampshire Housing lenders will accept applicants with a credit score of 620 or higher on an FHA loan. If you can increase your credit score to 660 or above your lender will have a wider variety of mortgage types to match you up with. This could result in better interest rates, lower mortgage insurance premiums, and lower monthly payments. Keep in mind that your credit score is only one factor in a loan application and the higher your score, the stronger your application. Aim for a score of 720 or higher to build a strong case for an approval.

How can I improve my credit or keep it high?

The best way is to make sure you are current on all your bills, including past debts, and to continue to pay your bills on time.  One $50 collection could have a dramatic impact on your score, so make sure to pay attention to all your debts, even the small ones.  Make an effort to keep credit card balances low.  A high credit card balance in relation to your limit will have a negative impact on your score even if you make your payments on time.

Before applying for a mortgage, request your credit report from the three credit reporting agencies: Equifax, Experian and TransUnion. You can request free reports from all three agencies at AnnualCreditReport.com, though you will have to pay extra for your scores. Check your reports for inaccuracies and file disputes if necessary.  Also, take advantage of the free credit score estimator and tracker at Credit Karma.  You want to make sure you know what’s on your credit report before visiting a lender to avoid any surprises.

HOMEteam’s Common Cents in Uncommon Times goes even deeper into understanding credit and its impact on obtaining a loan. Sign up for April’s series in Nashua!

Any other ways you keep your credit score up? Leave tips in the comments section below!