How your credit score can impact the purchase of a home
Purchasing a home can be the most rewarding — and also the most frustrating — financial transaction of your life. Especially today, when the news is filled with stories about the great market conditions for buyers. One aspect of the home buying process that's often overlooked is the extra cost that interest from a home loan adds to the total price of the home. It's true that interest rates are at historical lows. It's also true that lenders have reduced the types of loans they offer, and simultaneously have become more stringent about who qualifies. A recent study by VantageScore Solutions, the company behind the VantageScore credit score model, shows that the rate of default for homeowners with good credit (a credit score of 700 or better based on the VantageScore scale of 501-990) has decreased dramatically since 2009. Also notable is the increase in the last two years of new loan applicants with a score of 700 or better (less than 40 percent in 2009; 90 percent in 2011). The result? A good credit score can help shave thousands of dollars in interest off the cost of a loan. So, before you even begin looking at houses, getting your credit in good order is essential. A good credit score will help you qualify for the most favorable loan terms, and make buying a home a positive long-term experience. Here are a few tips from VantageScore Solutions that will help put you in a good position to apply for a home loan:• Already paying your bills on time? That's a great start. In addition, check your credit report to make sure it accurately reflects your credit history. You can obtain one free copy of your credit report annually from each of the three national credit reporting companies (Equifax, Experian and TransUnion) by visiting www.annualcreditreport.com. If you do find discrepancies, take the steps necessary to get those issues corrected. The FTC website lays out a process for you to follow if you believe there are corrections needed to your report. Be sure to allow at least 30 days for your credit report to reflect any information that might have been updated or corrected. • As you prepare to apply for a loan, make sure you're following other best practices that may help you improve your credit score. For example, experts recommend keeping your debt levels at less than 30 percent of the total credit available to you. You should also avoid applying for other types of new credit (credit cards, equity credit lines, etc.) before you apply for a home loan. • You may have heard that having your credit report requested frequently can harm your score, but do not let this keep you from shopping around for rates on a loan. A good rule of thumb is to gather research on mortgage providers over time, then tell the mortgage lenders to check your credit score within a 14-day period. Most credit scoring models will recognize that you are shopping for a home loan, and it won't significantly affect your score. • If your credit score is lower than you'd like, be patient. Rebuilding your credit takes time. While you might be anxious to purchase your home, waiting until your credit has rebounded can save you thousands of dollars in the long run if it means a lower interest rate. While it's easy to get caught up in the excitement of buying a home, it pays to take the necessary steps to ensure that you're getting the best rate possible on your home loan. To learn more about what influences your credit score and what you can do to improve your credit, visit www.vantagescore.com.