What is a credit score? | Things to know when buying a home in Las Vegas
What is a credit score?
You have probably heard of a credit score many times, but what is it really? A credit score is a 3 digit number between 300-850 determined by a calculating software – usually from FICO or “Fair Isaac Corporation.” Your score is determined by FICO or another financial company by your history, the different types of credit cards or loans that you’ve had or paid off, inquiries on your credit and the frequency of those inquiries, and your debt. Your credit score helps banks and credit card companies determine whether or not they can trust you with a credit card or loan.
Contact the Klinger Group at 702-509-1446 to get connected with a great mortgage agent and learn more about things to know when buying a house.
What does your credit score have to do with purchasing a home?
One of the things to know when buying a home in Las Vegas is that credit score is huge when trying to find a bank or lender who is willing to give you a home loan. If your score is very low, you may find it is incredibly difficult to purchase a home. Most lenders want credit scores of over 600, though some lenders will accept lower. Even if you do have a 600 credit score, however, you may find that your options for interest rates are a little outrageous. If you are thinking about purchasing your home, the first thing you will want to do is find out how to build a good credit score. With a good credit score, lenders will be lining up to give you a loan at a competitive interest rate.
Determining factors of your credit score
As stated above, your credit score is determined by your history, debt, types of loans, and the credit card you have or had and their diversity, and credit inquiries. Each category carries a different amount of weight when determining your score. For example, diversity of credit isn’t a huge factor, just because you only have credit from your credit cards won’t majorly affect your credit. However, history is a huge determining factor and takes time to correct.
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History – Your history is determined by two major things: the amount of time you’ve had any credit history and your payment history. If you are looking to build a good credit score and you don’t have any credit history, think about getting a credit card or getting a small loan such as a car loan or furniture loan. Just remember that payment history is a huge part of what lenders look at, so make sure to make payments on time. Payment history includes rent payments, phone bills, utility bills, loan payments if you have a loan, and more. If a bank sees that you always pay late, your checks occasionally bounce, or you’re behind on payments, they will see you as a risk. When banks see you as a risk, you’re looking at either no loan or high-interest rates.
Diversity – Remember, this makes up 10% or less of your credit score, so if you’re starting out with no credit, focus on the history. If you have a bad credit score and you’re going to do everything you can to raise your credit, diversify. If you have bad credit it is probably because you’ve put things on credit that you couldn’t afford. Moving forward, be sure that you have money in the bank for everything you purchase. So how can you diversify your credit if you are scaling back? Remember, working on different categories such as debt may help you more than diversification, so once you’ve paid off your debt or have gotten caught up on your payments, build your savings. Once you have a good cushion, think about applying for another credit card, purchasing furniture on financing, or trade-in your gas-guzzling car for something that will lower your gas bill and monthly payments. Again, this isn’t a category that will kill you, don’t think that since you only have 1 credit card or 1 car loan that you will be out of luck. Don’t get into more debt trying to diversify, it’s not worth it.
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Credit Inquiries – A credit inquiry is when someone runs your credit to determine your score. You will get 1 “free credit inquiry” a year. This means that 1 credit inquiry won’t hurt your score if you haven’t had a credit check in a year or more. However, if you have multiple credit checks, this will bring down your credit and banks may see it as being desperate to find ways of purchasing things you can’t afford. If you do need to get a credit check for your first credit card, you may want to wait a year till you apply for a mortgage so you won’t bring down your credit. This is also something to keep in mind when looking to diversify your credit, going out and applying for every type of car loan, credit card, or furniture loan would be a huge mistake because the credit inquiries necessary will kill your credit score.
Debt – What you currently owe everyone else is definitely something that your credit score will take into account as well as mortgage companies. If you have a huge amount of debt, how will you be able to make your mortgage payments? This will be a huge concern to lenders as your total debt may indicate to them that you do not take making payments seriously or that you are unable to financially. If you have debt, do your best to pay it off or at least consolidate it. Even if you have smaller debts you can pay off now, do your best to knock those out and decrease your total debt. Also, look into negotiating with credit card companies or other loans you have to decrease your debt. If you are able to build up your savings and offer to pay off your debt with cash, your lender may be willing to settle for less than what you originally owed.
Contact the Klinger Group for any real estate questions you may have at 702-509-1446.
If you’re wondering how you can have a low credit score when you have little to no debt, you have a strong, diverse credit history, and only have a credit check once a year, there may be an error in your credit score. TransUnion, Equifax, and Experian are a few companies you can visit online to try and dispute errors with your credit score. If you’ve experienced identity theft and your credit card company never removed the debt and late fees from your credit, you can dispute it and have things like that taken off your credit card. Mortgage companies will also have resources for you to correct errors in your credit, negotiate debt, and more. If you wish to find a great loan agent, contact the Klinger Group at 702-509-1446 to get connected and learn more about things to know when buying a house.