New Credit

New credit

 
When you're buying a home, one of the most important factors is your credit score. It's important to understand how it affects your mortgage loan.

When you buy a home, the interest rate you'll pay for the money you borrow will primarily be determined by your credit score. Your credit score is a three-digit number that can range from 300 to 850. A higher credit score increases your chances for getting approved for a loan and obtaining a lower interest rate.

Your credit score represents your calculated measure of risk. Lenders look at your credit report as an indication of how likely you are to make your payments and make them on time. People with higher credit scores are deemed safer risks and may be eligible for lower interest rates.

Some of the factors that go into determining your credit score:

� Your payment history -- How well have you repaid other loans or debts in the past? Did you miss any payments? Did you fail to pay back a debt entirely? Have you declared bankruptcy or had anything go into collections?
� Amount owed -- How much debt, including credit card debt, do you currently have? Are your credit cards maxed out? What other outstanding loans do you have, such as car loans or student loans? How much do you owe on them? The more you owe, the lower your credit score may be.
� Timeline of credit history -- When did you establish each credit account and what is the    timeline of your credit payment activity? The longer you've been establishing credit, the higher your score will be.
� New to credit -- Have you applied for new credit recently, including a credit line increases, and how many accounts have you opened recently.
� The combination of your credit -- The more ways you spread out your credit (mortgages/car loans/student loans), the higher your score will be.

If you have a low or no credit score, there are things you can do to get or raise your score in preparation for purchasing a home. Things such as paying off credit cards to lower your debt-to-income ratio, avoiding large purchases, such as a new car or new furniture, and avoiding applying for new credit.