How to Buy a Home: Start with Your Credit

Filed in Credit, Home Buying by on February 24, 2015 0 Comments

Start with Your Credit is an eight-post series on the essential steps on How to Buy a House.

Learn how to navigate the home buying maze.

Learn how to navigate the home buying maze.

If you’re looking for straight-forward, no-nonsense, and no hard sell info on how to buy a house, look no further. Lucky you, you’ve found me and my immense and impressive home buying acumen.

Now, pay attention and start with your credit. It’ll make or break your ability to buy a house.

Credit is defined as the ability to obtain goods or services before payment, based on the trust that payment will be made. Your credit history is a record of your credit accounts. This includes just about anything you pay for in arrears (after you receive the goods or services).

It is a misnomer that “credit” strictly refers to credit cards. Your credit includes your payment history for goods and services such as utilities, cable TV, mobile phones, student loans, mortgages and lines of credit – as well as credit cards. Your credit also includes things like medical bills and appliance purchases that you pay over time.

Your credit (and credit score) is one of the most important aspects of qualifying for a home loan (as well as other loans, credit cards, insurance – even getting a job). You must have a credit history that shows the responsible use of credit. Your credit history is an indication to lenders of how likely you are to repay your loans – a small detail lenders are really, really interested in.

You credit report is a list of all credit you have obtained and your history/performance with that credit. Yes, big brother is watching.

It’s important to know what’s on your credit report so you can see what lenders see, and to make sure there are no errors or missing information. You can get a free copy of your credit report (not credit score) at www.annualcreditreport.com100-percent-mortgage

Your credit score is a number that ranks your creditworthiness. Lenders use this number to determine whether or not they’ll loan you money and, if so, at what rate of interest. The higher the credit score, the better – and the lower the interest rate you’re likely to be offered.

FICO (Fair Issac and Co.) credit scores are the most commonly used by lenders. FICO scores range from 300 to 850. Lenders will rate or grade your credit based on a variety of factors; credit score being the most prominent. For example, many lenders rate a credit score of 720 or higher as A+. Scores in the 575 to 650 range are given a C grade (average).

According to CreditKarma, the average credit score in Maryland is 671.

Your FICO credit score is significantly influenced by your previous debt/obligation payment history and by the amount of debt owed. If you don’t pay your bills on time (or at all), your credit score will suffer and it’ll be difficult and/or more expensive for you to buy a house – and you’ll have no one to blame but yourself. Boo hoo.

Start  healthy credit behavior now. Hello! This will help raise your credit score, which means a lower interest rate, which equates to a higher borrowing capacity, a lower monthly payment and lower overall loan costs. Kapeesh?

If you want to buy a house I say do these things now:

• Pay bills on time
• Avoid applying for new credit (no new car or credit cards)
• Check your credit report and address any errors/negative marks
• Avoid closing any credit accounts

I know what you’re thinking; This Smart Green Pig knows his stuff! Well, there’s plenty more where this came from (seven more posts, to be exact).

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About the Author ()

Melvin is the Smart Green Pig. "Smart" as in intelligent. Some would say "Super Intelligent" or perhaps "Genius". But also "Smart" as in surly and sarcastic, so watch your Ps and Qs! By the way, Melvin gets paid (quite handsomely) by SECU, so even though he's completely unbiased, some might think otherwise. Just sayin' (disclosin').

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