How your credit score impacts your ability to buy a home or refinance.

Family enjoying being outsideThe term “credit score” represents a three-digit number that reflects your creditworthiness. To put it another way, it’s a measure that influences a creditor’s decision to lend money for a major purchase — especially real estate.

If you want to borrow to buy a home, having an excellent credit score will help you secure financing more easily, and can provide a more attractive interest rate as well.

When you apply for a loan, a lender typically runs a credit report to help gauge the amount of risk involved in lending you money. Understanding how credit scores work can improve your chances of getting approved, and even help you qualify for a larger loan.

Your credit score is calculated based on various factors in your credit report, which are generally weighted in importance as follows:

  • 35% — your payment history and on-time record
  • 30% — your total indebtedness
  • 15% — the length of your credit history
  • 10% — your credit risk
  • 10% — the number of new account and credit requests you’ve made

If your score is below what’s needed to qualify for the best rate, these tips may help increase your score:

  • Pay down any existing credit card debt to below 30% of the available credit limit.
  • Set up automatic loan payments to ensure that your monthly obligations are paid on time.
  • Monitor your credit report for accuracy and report errors immediately. Go to AnnualCreditReport.com to receive a free credit report every 12 months from Equifax, Experian and TransUnion, the three nationwide consumer credit-reporting companies.

Ultimately, having an exceptional credit score can help you land your dream home and save money with lower finance rates.

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