Why buyers and renters should check their credit scores

Manage Your Credit Spring is upon us and, as the days get brighter and warmer, many of us turn our thoughts to not just spring cleaning our homes, but also changing homes completely.

The pattern of home ownership in the United States is changing. An increasing number of us are considering renting as an attractive alternative to buying our own home.

Regardless of whether you choose to rent or buy, your credit score is likely to impact your options. Before you call the realtor, it's a good idea to first take a tour of your credit report.

Credit scores and home ownership

Your credit report is made up of a number of factors that combine to give you a credit score. Your credit report includes:

  • Your payment history: Your payment history is a list of your credit agreements and includes details of your loan amounts, monthly repayments and any records of late or missed payments.
  • Your outstanding debt: This is a reflection of your debt-to-credit ratio. Your debt-to-credit ratio is the amount of debt that you have in relation to the total amount of credit available to you.
  • Length of credit history: The length of your credit history is important because it allows lenders to build up a picture of how well you have managed your debt over a given period of time.
  • New lines of credit: Each new line of credit will appear on your credit report. A lot of new credit appearing over a short period of time can make lenders nervous because it can suggest a lack of control over spending.
  • Different types of credit used: Your credit report will break down the types of credit that you have. Each type of credit is weighted differently depending on the ease with which the credit is obtainable. For example, a mortgage carries more weight than a store charge card because a store card is relatively easy to obtain.

Renting and your credit score

In the past, a landlord may have relied on a "gut feeling" to decide whether or not to trust you with his or her property. Now an increasing number of landlords are turning to credit scores instead. With a credit score of 631 or above, your rental application is likely to be accepted; with a score of 551-630, you might be accepted with qualification; and with a score of less than 550, you will more than likely see your application rejected.

If your credit score is low, all is not lost as some landlords may also take into account your landlord and employment history. They could also offer a tenancy agreement with guarantor. In this case someone else (usually a homeowner with a mortgage) guarantees to make rent and fulfill your tenancy obligations should you fail to do so.

If you plan on using a guarantor, it's a good idea to have them check their own credit report beforehand because credit reports may contain errors.

Home buying and credit scores

If you are considering buying your own home, your credit score will have an impact on the range and cost of mortgage products available to you. For example, a high score of 760-850 will allow you to access products with a lower rate of interest; whereas a lower score (less than 620) will limit you to more expensive mortgages. A score below 520 will probably result in a rejection of your mortgage application.

Checking your credit report, especially in advance of moving into a new home, allows you the opportunity to check for and address any errors. Viewing your credit report and knowing your credit score will also give you a feel for how landlords and mortgage lenders are likely to respond to any applications that you make.


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