For prospective homebuyers, there is one number that carries so much weight. Your credit score. We know if it's high, getting a mortgage should be an easier process with a better rate. If it's on the lower end, it might be a struggle to get approved and you will pay more. But, what is high and what is low? COListings is here to help answer what's in the number.
Breaking it down
Credit scores are calculated by three U.S. credit bureaus: Experian, Equifax and TransUnion. They use the following variables to determine your score.
Payment history carries the most weight at 35%. This is whether you’ve made on time payments on your credit lines. Even one payment that is 30 days late can cause your score to drop more than 90 points.
Debt-to-credit ratios are a close second making up 30% of your total score. This is figured by how much debt you have on current credit card accounts. Most lenders look for a ratio of 36% or less, but there are exceptions.
Length of credit history makes up 15%. The longer record you have showing that you are a responsible credit user, the more it boosts your score.
Credit mix makes up 10%. This is combination of what kind of accounts you carry. Credit cards, loans, previous loans, retail credit cards and previous mortgages.
New credit fills in the rest at 10%. New credit is any lines of credit that have been opened within a short period of time. Multiple or very recent new lines can be a red flag to mortgage lenders.
A perfect credit score is 850. All scores above 760 are considered the best range to be in and will get you the best rates. 650's to 750's are typically in the good range. Credit scores that fall below 650 is where it starts to get murky. You may still qualify, but you will just have a higher interest rate. If you have a very low or poor score, you likely had some issues building or maintaining your credit and it will need repair before you can buy a home.
Whether you are in a great position or your score may need some work, if you want to buy a home make payments on time, reduce debt ratios on your accounts, keep established lines of credit, and avoid applying for new credit accounts.
If you are worried about your score but you know you are ready to buy a home, don’t be discouraged. Talk with a COListings agent who has multiple lender connections that can lay out what your options are. Knowing where you stand is the only way to feel comfortable on if you should move forward or make some changes before you buy.