As a Real estate agent in Central New Jersey, I am often asked about how a credit score will help or hurt a home purchase. Obviously the higher the score the easier it is to purchase a new property but there are a lot of misconceptions floating around about how a credit score is determined and what it means.
There are some misconceptions about credit scores.
Misconception number 1 – People who have a lot of money have better credit scores. This is a myth due to two factors. One is that income is not a factor in determining a credit score and two is that even rich people do not always pay their bills on time.
Misconception number 2 – If you do not have a credit history you will automatically have a low score. This question comes up with first time home buyers a lot. The good news here is that by having no history you also have no negative history! In most cases, the three major credit score companies will give you an initial rating in the mid 600s. As soon as you start to establish a credit history it will then go up or down based on your payment behavior.
Misconception number 3 – I have a low credit score and there is almost no way I can buy a home since I can’t raise the score enough to make a difference. Nothing could be further from the truth. A professional real estate agent has many resources to help you get your score up as soon as possible. Within a year for instance you can add as much as 100 points to your score by using some of these suggestions:
*Get a credit report run. There are often errors on your report and clearing them up can add points to your score. Be prepared to write a letter to the credit reporting company documenting why you think there is a false report in your file.
* Get current on your payments. Start paying your bills on time even if it is just the minimum payment on your credit cards.
*Consider using a secured credit card. Basically you open a savings account for a set amount of money say $1000 and the card then has an available credit line of $1000. The deposit becomes a credit line for the credit card which helps you establish a higher credit score.
Misconception number 4 – You have to be in debt to have a good credit score. To get credit score above 800 most people have done all the right things. They pay their bills on time all the time, they established their credit history early in life and actually used their credit cards and paid them off on time, and they kept a lot of debt off the cards. The big credit assist here is the last part called credit utilization ratio. Basically the reporting agencies look at how much credit you have access to as opposed to how much of it you are using at any point in time. Thirty percent is consider the optimum ratio to most credit agencies.
If you are considering buying a home your interest rate as well as your ability to get a loan from the mortgage company will depend on your credit score. In fact even if you are thinking you will simply rent the landlord will want a copy of your credit report to see if you pay your bills on time or have a lot of excess debt.
If you would like more information about the ways to get your credit score up in the shortest period of time just send me an email at firstname.lastname@example.org with the word CREDIT in the subject line. We will help you get back in the game as soon as possible.