Your credit score is more than a number; it is a reflection of your financial health and your ability to service your financial obligations. When you purchase a home, it is a number that is as important as your down payment, income, and assets. Our real estate agents don't want your deal to fall through because of a low FICO Score. Understanding the following can help you prepare your credit for one of the most important investments of your life.

How Lenders Use Credit Scores

Lenders view your FICO Score as a measure of your creditworthiness. The higher your score, the lower the fees and interest rates you will pay. That's because the higher the score, the lower the risk you pose to the lender. Conversely, if you have a lower score, you pose a greater risk and will pay higher fees and interest.

Different scores have different minimum requirements. These vary from lender to lender, but most have a minimum FICO requirement of 620 for conventional loans. Further, different loan options have federally mandated minimums. For example, FHA loans with a 3.5% down payment have a score requirement of 580, while an FHA loan with a 10% down payment requires a FICO Score of 500. Jumbo loans for more expensive real estate purchases will typically require a minimum FICO score of 680. Finally, while VA loans do not require a minimum score, most lenders will require a score of at least 620 to qualify for the loan.

What's in a "Good" Score?

Most lenders consider a FICO score of 740 to be solid and safe. This score coupled with a reasonable down payment and sufficient income is more than adequate to qualify for a 15 or 30-year mortgage.

Your score is a reflection of your financial history. It includes the following information, and each aspect is weighted based on its importance to your creditworthiness:

• Types of Credit (10%)
• New Credit History (10%)
• Length of Credit History (15%)
• Total Debt (30%)
• Payment History (35%)

FICO Scores are broken down into the following ranges:

• 300-629 Poor Credit
• 630-689 Fair Credit
• 690-719 Good Credit
• 720-850 Excellent Credit

If you have poor or fair credit, it pays to wait to purchase a home until you can raise your score into the "Good Credit" range. However, there is not much difference between "Good Credit" and "Excellent Credit." Waiting until you can raise your score can save you significantly over the life of your loan since you will pay lower interest rates and fewer fees to service the mortgage.

Fixing Your FICO Score

Every home you purchase will require regular maintenance and upkeep. Your credit score is no different, and there are chores you can do to fix your credit before you start mortgage shopping.  

1. Scan for errors. Nearly 20% of credit reports have at least one error.
2. Pay off debts. Pay down high-interest credit cards and revolving debts. 
3. Raise credit limits. As you pay off debt, raise your credit limits on cards. This will lower the ratio of available debt to debt used, which in turn will raise your score.
4. Pay on time. Establish a solid record of making each and every payment on time.
5. Don't open, and don't close accounts. Both of these actions can lower your FICO Score.
6. Monitor your credit. Stay on top of your credit by monitoring it through services offered by your card issuer, bank, credit union, etc.

Do you have your eye on some Atlanta homes for sale right now? Contact us, and we will be happy to arrange a showing of your dream home.