Your credit, the first step in the homebuying process

You’ve made the decision to take the plunge but are unsure as to where to begin. Well, the first place to look would be the health of your credit. Guaranteed Rate wants you to know, while there are other factors which impact your rate (down-payment amount and the type of property you are purchasing) your credit score has a direct impact on not only your rate but your ability to qualify for a mortgage.


Understanding your Credit

Let’s first begin by understanding the ingredients of healthy credit:

Credit Cards are considered revolving credit; this means there is a fluctuating balance. The secret is not to use more than 35 percent of your available limit and, ideally, pay your balances in full every month.

Auto Loans, Recreational Loans and Mortgages Loans are considered fixed rate loans. With these types of loans the balances are not as important as the payment history – so be sure to keep timely payments.

Student loans are installment loans and they do not weigh as heavily as other debt. Also, if you decide to go back to school or require a forbearance, your credit score will not be negatively impacted.

Bruised Credit

If you know you have some credit blemishes, don’t worry. With a little work (and time) you too can have great credit. Most negative information will fall off after seven years (sometimes you have to give the credit agencies a little nudge). The exception to this rule is a Chapter 7 Bankruptcy which will report for ten years. The good news is, while you may have tarnished credit today, as time passes the negative accounts weigh less and are eventually removed.

One great way to rebuild credit is with the use of secured credit cards. Secured credit cards allow you to begin repairing your tarnished credit while simultaneously giving the offering bank the security it needs. For example, if the bank offers a $200 monthly limit, you will be required to give the bank $200 to hold in a savings account; in the event you don’t pay your bill the bank will use your deposit to cover the balance.

Once you receive your card it is wise to get in the habit of paying off your balance in full every month. With every passing month of timely payments you will begin to see your credit score improve.

Recipe for Good Credit

Unfortunately there is no formula available so, live by these simple credit rules and you will have an 800 score in no time:

  • Pay your bills on time.
  • Use credit cards responsibly. Do not avoid revolving debt, it is necessary and is part of the best practices of attaining good credit.
  • Don’t apply for too much credit; each inquiry will cost you five points per pull, per bureau.
  • Protect your Identity.

Now that you are clear about your credit, let’s see your credit report. Everyone is allowed one free credit report per year and when you pull your own credit, it doesn’t count as an inquiry. The free report does not include your three scores; you will need to pay extra for the inclusion of scores.

Educate Yourself: Federal Trade CommissionU.S. Department of JusticeFair Credit Reporting Act Summary

Credit Resources: EquifaxExperianTransunionAnnual Credit ReportCredit Karma and Credit Sesame

Visit Guaranteed Rate often for consumer-friendly mortgage education.

Continue Your Guaranteed Rate Education

How to Read Your Credit Report
How to Manage Your Credit
Divorce and Your Credit

Your mortgage. Your way.

Get started on your Digital Mortgage!
All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Guaranteed Rate, Inc. does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by Guaranteed Rate, Inc. Guaranteed Rate, Inc. its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action.