For many, credit scores can feel like a magical number that decides if we get the house or car of our dreams. Unfortunately, that perception is not completely wrong. It’s not magic, though. As much as your credit score can affect you, you can affect it.
A good or bad credit score can change everything from how much you’re approved to borrow to your interest rates, so of course, it matters. These are the top things lenders think about when looking at your credit score.
Your Credit Score itself Makes a Huge Impact
The final number you see for your credit score is often a large indicator of your financial health. For example, the difference of a hundred points could mean tens of thousands of dollars added in interest to a mortgage: so it’s a good idea to know and work on this ahead of time.
Although the average credit score in the USA sits around 650, the ideal one before you apply for a home should be above 700. This means that when you put your interest into a house payment calculator, you’ll see far more affordable monthly payments, as well as possibly more loan offers than you would at 650.
Shows your Credit Utilization
How much you use your credit can change how a lender looks at you. For example, if you use a lot of your credit allotment every month, you could seem like you don’t plan, or you’re incapable of controlling your spending. Even if you pay it back every single month, this can look bad and affect how much they’re willing to loan you in the long run.
Shows how Good you are at Making Payments
If you miss a payment, it shows up on your credit score for the next few years. This missed payment may make a lender feel like you aren’t trustworthy or like you might try to take advantage of them or default on your loan.
This could make lenders decline to give you money if it’s on your credit report often enough. Of course, you should try to make payments on time, but if you’ve struggled with this in recent years, try to pay down your debt and get back into the swing of making on-time payments before you make any attempts to buy a home.
Displays Whether you Open a Lot of Credit Accounts
How many credit cards do you have? How many of these do you use every year? Although you may be in good standing with all of them, having more than three open accounts can negatively affect your score and how lenders view you. Therefore, it’s a good idea to have fewer cards that are all kept in great standing.
Shows if you’ve Been Evicted or Defaulted any Loans
If you’ve been evicted in the last seven years or defaulted on any loans in the previous few years, it will show up on your credit report. So it’s a good idea to pay off any remaining debt you have to either of these sources and try to repair your credit history by making smart purchases and credit decisions.
Although you can’t instantly fix any of this or wipe it from your score if it’s legitimate, you can prove that your behaviors have changed.