Buying your first home as a first time home buyer requires that you have, shall we say it, "all of your ducks in a row." Part of getting ready to buy your first home is to prequalify for a mortgage. The first step to prequalifying for your first home loan should start with checking your credit scores. Once you have your credit scores you will need to know the credit score factors that have a major impact on how your scores are calculated.
Credit Score Factors To Impact Your Credit Score
Errors on your credit report – Errors on your credit report can have a big impact on your credit scores. Once you get your credit report and credit scores you will want to review through it with a fine tooth comb. If you find mistakes, you will want to follow the procedures of the credit bureau to learn how to correct errors on your credit report. You will also want to make sure you get all three credit bureaus and credit scores as each credit bureau reports information a little differently.
Lower Your Credit Balances – With any errors out of the way, the next thing you can take a look at is the balances on each of your credit cards and compare them to the limits on each of your cards. You want to make sure that your balances are at least 50% or less of your limits. The ideal to stay under is 30% if you are not able to pay off your credit cards each month.
Keep Credit Cards Open – One thing you do not want to do as you qualify for a mortgage is close credit card accounts. Open credit card accounts help your credit scores in many ways. What is for sure is when you close a credit card account your credit scores will go down for several months which could mean a lower interest rate on your mortgage and that you qualify for less of a house than you can really afford.
No New Credit Accounts – During the time before qualifying for a mortgage until after you get your new mortgage and first home, do not open any credit accounts. Opening new accounts will lower your scores in a variety of ways. One way to think about this is that everytime a credit account is opened the person who opened the account just increased their credit risk in the eyes of a mortgage – which means higher mortgage interest rates and lower mortgage amounts.
No New Credit Card Activity – Recent credit card activity where you purchase large ticket items like furniture could drop your credit scores and lower the amount of mortgage for which you can qualify. Even if you have been pre-approved – even approved – do not buy these new things for your new home until after you get your keys. If you have any questions about whether you can purchase something on credit make sure you check with your loan officer.
You may think you have perfect credit, or high credit scores, but if you have not checked them in a while you will want to do this. With knowing your scores in advance you will have opportunity to make some improvements to your credit report and credit situation before you try to get your mortgage. Simply put: the higher your credit scores – the better your interest rate. The better interest rate you can get can mean two things: a lower payment or you can afford a little larger home. The way to improve your credit scores is to know what credit score factors you can change as you prepare to buy your first home.
Well that about wraps it up for looking at credit scores factors to consider when buying your first home. Hopefully with some small changes in behavior and a little knowledge about what factors impact your credit scores you can keep your credit scores high to allow you to get the lower rates and so that you can afford the home you really want.