Your credit score is a tool that lenders use to measure to risk of doing business with you. Your credit score is one of the largest pieces that determines if you qualify for a home loan. Here are the factors that make up a credit score.

Factors That Make Up a Credit Score

Payment History

Payment history is the most influential category of your credit score. Simply, if you have a track record of paying all of your bills on time, you are set in this category. The presence of negative information on your credit report will result in a lesser number of credit score points awarded. If you are looking to work on improving your credit history, consider focusing your efforts on this category first as it plays a major role in your overall score.

Amounts Owed

This category looks at the amount of your total debt. This section makes up 30% of your total credit score. Revolving utilization, or the debt to limit ratio on your credit account, is the most important factor considered within this category. Generally, the fewer number of accounts with balances on your reports, the better.

Age of Credit

Did you know that the age of credit also matters? This category makes up 15% of your credit score. Age of credit is comprised of the average age of accounts, how long accounts have been open, and the age of the oldest account. Because of this, it’s not always a good idea to terminate retail lines that you opened in high school/college. These accounts show longevity in your credit account.

Mix of Existing and New Credit

The mixture of accounts on your credit reports is also examined. Both existing and new credit is worth 10% of your credit score. It can help your credit score to have a variety of different account types on your reports. These account types include revolving credit account like credit cards, installment payments like student loans, auto loans, and mortgages. The mixture of loan types positively effects your score. Be cautious of applying for credit too often. When a lender pulls your credit it shows as an inquiry. Too many inquiries and it can negatively affect your credit. The good news is that any harm an inquiry has on your report only lasts for 12 months’ maximum. Additionally, if you’re shopping for credit, like a mortgage or auto loan, multiple inquiries within a short amount of time may only be counted once for scoring purposes.

You may also like: Helpful Real Estate Terms to Know

Purchasing a new home is a very exciting process but can seem like a daunting task especially for first time home buyers. Researching key terms ahead of time will help your home buying process go as smooth as possible. Here are six helpful real estate terms to know.

Helpful Real Estate Terms to Know

Multiple Listing Service

The Multiple Listing Service (MLS) is a database of past and current relate estate listings in a given area. Each region has their own MLS and only licensed real estate agents have access to the listings. However, real estate agents can research listing in the MLS, and can send buyers direct links for listings.

Pre-Qualification vs. Pre-Approval

Two of the most helpful real estate terms to know are pre-qualification and pre-approval. A pre-qualification gives you a financial overview of the mortgage you may qualify for. When a lender takes a look at your credit, income and assets, and other key pieces of documentation, you are pre-qualified. While pre-qualification sounds like pre-approval, they are two different terms. A pre-approval is an official statement from the lender stating which specific mortgage you qualify for. Going to open houses with a pre-approval letter is a good idea as it tells the seller you are serious about buying at this time.

Closing Costs

Closing costs are in addition to the down payment and final sale price of the home. Because of this, closing costs should be considered when making your home decision. These costs usually make up 2 to 5 percent of the home price. Closing costs may include loan processing costs, title insurance, excise tax, and other forms of local taxes.

Escrow

The primary purpose of an escrow for a real estate title transfer is to have a trusted third party hold the seller’s deed to the property, which will be delivered to the buyer upon closing. Escrow offers protection for home buyer with funds being held until the deal is closed.

Earnest Money

Once you select a home, you put down a deposit, known as earnest money. This shows the seller you are committed to buying this specific home. Once deposited, earnest money is held in escrow while final contracts are finalized. When you do close on your home, these funds are applied toward your down payment and closing costs.

Fixed Rate vs. Adjustable Rate Mortgage

In a fixed rate mortgage, the interest stays the same for the life of the loan. In an adjustable rate mortgage, the interest rate can change over the course of the five, seven, or ten-year intervals (depending on the specific adjustable rate loan type).

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