Credit Score: A Primer for the First Time Home Buyer
Posted by Elizabeth Dennis on July 12, 2010 | 1 Comment
To get ready to buy a house one of the very first things you should do is check your credit rating and credit score. In most cases, you will need to take out a mortgage to pay for your new home. Your credit score is the most important factor in determining what interest rate you will pay for your mortgage.
Credit Bureaus
The information in your credit report is gathered by reporting agencies called credit bureaus who then offer it to potential creditors. The three main credit agencies are Equifax, TransUnion, and Experian. A creditor will make a decision about you with regards to your credit risk by looking at these companies’ reports. To better analyze your credit, you are assigned a credit score, a three-digit number that takes into account all of your credit history. The numbers range from 300-850; the higher the number indicating a better credit risk.
How is your Credit Score Determined?
Points are assigned based on items in your credit history. Your resulting score is compared to those of other consumers with similar profiles. With this information, mortgage lenders have a pretty good idea of  how likely somebody is to repay their loan on time. There are different scoring methods out there but the most common is known as a FICO score. The name comes from an independent company who created it; Fair Isaac and Company. This is how the score is broken down:
- Payment history – 35%
- Amounts owed – 30%
- Length of credit history – 15%
- New credit – 10%
- Types of credit – 10%
The number and types of inquiries also play a role in determining your score. Public inquires, including bankruptcy filings are considered as are the number of inquiries made. If too many new credit inquiries exist, this may indicate to the lender that you are preparing to go into additional debt by taking out new loans.  Fortunately, mortgage inquiries do not fall into this category. All inquiries from mortgage lenders within a 30-day period count as one inquiry.
Filed Under: Mortgage, Newbuyer's Own
Comments (1)
Buying a home is the biggest investment any of us will make in a lifetime. being educated in the current market your purchasing in will help keep the stress down and the excitement high. Learn all you can then speak to your mortgage professional to guide you the rest of the way. Good Luck and happy trails to being a homeowner.