Why Your Credit Score Matters When Buying a Home

Getting ready to buy a home? Good for you! One of the first steps toward buying a home is getting your financial house in order, including checking your credit score and taking steps to improve it. This overview of credit scores and why they’re important will help you confidently move forward. 

What Is a Credit Score?
Let’s start with the basics. A credit score is like a numerical “grade” that’s assigned to your credit history and generally includes the following five factors:

• Your history of making payments on time
• The amount of your outstanding debt
• The amount of available credit you use
• The overall diversity and length of your credit history
• Recent inquiries from lenders or businesses into your credit record

In essence, credit scores help predict how likely you are to repay your debts, which is why they’re a crucial factor when it comes to mortgages. Equifax, Experian and TransUnion are the three main credit reporting companies that generate these three-digit scores, which typically range from 300 to 850. The more favorable your credit history, the higher your credit score.

How to Determine Your Credit Score
As a UW Credit Union member, you can check your credit score for free anytime in Web Branch. It’s updated every day and offers a great way to monitor your credit score’s progress over time. You also can review your full credit report in Web Branch with no impact to your credit score. It’s a smart idea to examine your report in case there are any mistakes (which occasionally happens) or fraudulent activity.

How Do Credit Scores Impact Your Mortgage?
Along with your debt-to-income ratio and financial history, your credit score is one of the most important factors that lenders take into account when evaluating your mortgage application. This makes sense, too, since credit scores give lenders a good sense of your likelihood to make on-time payments on a regular basis. Again, the higher your score, the more likely you’ll get approved for mortgages and get the best rates.

How to Strengthen Your Credit Score
Here are some savvy steps to boost your credit score:

• Make payments on time
• Pay down your loans
• Minimize credit card account balances compared to your credit limits
• Try hard to responsibly manage your credit accounts over extended periods of time

Maintaining a positive credit history isn’t always easy, but it’s worth the effort when you’ve got dreams of owning a house you can call your own.