Buying your first home is an exciting, but sometimes scary endeavor. One of the first hurdles to get over before you can start home shopping is ensuring you can obtain a home loan. The single most important number that follows you throughout your entire adult life is your credit score. Ultimately, your credit score will determine whether you will fulfill your dreams of buying a home.

What does your credit score say about you? Generally speaking, your credit score tells a story to your lender. It shows the likelihood of you being able to pay off your home loan based on your credit history. Your credit history shows whether your bills were paid on time, the amount of debt you have, and the length of credit history you’ve established. All these factors will lead to you being approved or declined for a home loan. If you’re approved, your credit score is also a factor for determining your interest rate. Quite simply, the better your credit score, the better your interest rate.

Now, let’s break down the contributing factors that make up your credit score. Knowing this information will help you be prepared, and quite possibility help you make better decisions regarding your financial health.

Contributing Factors to your credit score

• Length of credit history
  1. Contributes to 15% of FICO score
  2. Having longer credit history positively affects score
  3. Short credit history can hurt your score
• Utilization of your credit cards
  1. Contributes to 30% of FICO score
  2. High balances on cards = more debt = hurts score
• Your Payment history
  1. Contributes to 35% of FICO score
  2. Having long history of paying bills on time is beneficial
• New Credit Cards
  1. Contributes to 10% of FICO score
  2. Lenders interpret a borrower who has opened multiple credit cards in a short period of time as having financial trouble
• Credit Mix
  1. Contributes to 10% of FICO score
     1. Have a variety of debt
     2. Tells lenders you can handle different types of payments
        1. Student Loans
        2. Car Loans
        3. Credit Cards

If your credit score is in need of some help, here are some steps to take that will lead to increasing your credit score over time.

• Make sure you have no collections
• Keep credit card balances low
  • Pay off high debt multiple times a month – not just once a month
  • Percentage of available credit that has been borrowed.
    • Don’t utilize more the 35% of your credit line
  • Continue to utilize all credit cards – Inactive cards can hurt credit
    • Keep small balances on each card

• Don’t miss any payments
  • Don’t open too many credit cards at one time
    • Multiple inquiries of your credit being pulled drops your score

• How to monitor of your score.
  • Know your score from all three National Credit Bureaus before applying for a home mortgage.
    • Three Credit Bureaus
      • Equifax
      • Experian and
      • Transunion
    • Use a Free Credit Check Company
      • Pull scores from 2/3 of the top credit bureaus without creating credit inquiries from:
        • Transunion
        • Equifax

By being aware of tools to increase your credit score and overall financial health, you can help your chances of obtaining a home loan and purchasing your first home. Just remember, before you apply for a home loan, know that your credit score plays a big part in the interest rate. Be aware, prepared, and ready to apply when you know your credit score is high.