Q. How does your credit history affect your purchase of a home? 

A.  Your history of credit is one of the most important factors used by lenders to determine whether you qualify for a mortgage and the interest rate for your financing. Credit scores also affect the ability to rent property. Credit rating is calculated through many factors to arrive at your FICO score which determines your credit worthiness. (FICO scores were developed by the company Fair, Isaac, and Co.)

Your payment history and amounts owed make up approximately 65% of your credit score; the length of credit history, types of credit, and new credit account for the balance. Credit scores can range from the 300’s to over 900 and the higher your score, the easier and cheaper it becomes to secure a loan. There are several ways to improve a credit score:

1. pay down your balances to less than 30% of credit card limit.

2. remove incorrect information from credit report

3. pay your bills on time

4. postpone new debt  for big-ticket items

5. don’t let disputes go to collections.

Remember that credit applications and inquiries can also have a negative impact on your credit score.

You should review your credit report well in advance of a mortgage or rental application to see if there are any mistakes or improvements you could make. Be sure your personal credit report is accurate, complete, and up-to-date. It is also critical to be sure you have not been the victim of identity theft. You are entitled to 1 free copy annually of your own credit report, either through www.annualcreditreport.com or by calling 1-877-322-8228.