When you are in the process of buying a home, your credit score is at the top of your mind. You may know that many lending institutions require credit scores of at least 640, and the best mortgage rates go to the applicants with the best credit scores. But did you know that your credit score starts with a credit report? To truly understand your credit and where you stand, you must understand both the credit report and your credit score. Read on to learn the difference between the two and how you can get your credit in shape to buy that dream home in North Carolina!
What is a Credit Report?
Your credit report is essentially a listing of your existing credit history—think of it as a giant receipt that includes information on your current loans, credit cards and credit inquiries, including how long you have had them open. It also tallies up how much money you currently owe on your different lines of credit as well as the all-important payment history and even past bankruptcy filings. By looking at your credit report, lenders can get a great idea of your overall credit and determine your loan risk.
How Do I See My Credit Report?
Thanks to the Fair Credit Reporting Act, all consumers are entitled to one free credit report per year from each of the three reporting agencies, Transunion, Equifax and Experian. You can access your credit reports from all three at www.AnnualCreditReport.com.
Can Information on a Credit Report Be Wrong?
When you look at your credit report, it is important to look for information that doesn’t look quite right. Errors do happen—and they can be costly! Check to make sure that all loans and credit cards listed are yours, and look at all available information for incorrect data. If you see an error, report it immediately. Errors in your credit report can affect your credit history and ultimately your credit score. You don’t want an error to cost you when it comes time to approach a lender for a mortgage!
What is a Credit Score?
You may know that your credit score is that little number that you want to have as high as possible when you go to approach a lender for a mortgage—but do you know what a credit score really is? You can think of a credit score as a three-digit grade between 300 and 850 that indicates your credit risk. Your credit score is based off your history in your credit report. If you have a high credit score (you pay bills on time, have a small amount of debt, have a reasonable credit history), lenders are more likely to give you the best rates. If you have a low credit score (unpaid loans, multiple maxed out credit cards, bankruptcy filings) you may get less favorable rates—or may not be able to secure financing at all!
How Can I Improve My Credit Score?
When you approach a lender for a mortgage, you want your credit to be in the best shape possible. Improving credit takes time, but here are some things you can do to help:
- Pay your bills on time and in full
- Pay down debt on your credit cards
- Avoid opening new lines of credit before obtaining a mortgage
If you would like more information and other tips on how to improve your credit score, visit www.nchfa.com/news/poor-credit-learn-how-improve-your-credit-score.
And if you think your credit is ready for a home purchase but not sure if you can afford it, the NC Home Advantage Mortgage™, offered by the NC Housing Finance Agency, provides down payment assistance, competitive rates and lenders statewide to buyers with a minimum credit score of 640. Think home ownership is out of your league? Think again! Visit www.nchomeadvantagemortgage.com to learn more!
