Here are a few more things to know about the benefits of a higher credit score and how to improve yours.

Benefits of a Good Credit Score for First-Time Homebuyers

1. Lower Interest Rates: A good credit score helps you qualify for lower mortgage interest rates, saving you thousands over the life of your loan.
2. Higher Loan Approval Chances: Lenders are more likely to approve your mortgage application if you have good credit.
3. Access to Better Loan Options: You’ll have access to a wider range of loan programs and terms.
4. Lower Down Payments: Some programs, like FHA loans, offer lower down payments for those with better credit.
5. Lower Private Mortgage Insurance (PMI): If your credit is strong, you may pay less in PMI fees if required.
6. Stronger Negotiating Power: A good credit score positions you as a reliable borrower, giving you leverage in negotiations.
7. Faster Approvals: Lenders can process loans more quickly for borrowers with good credit.
8. Less Stress: Knowing you’re financially prepared makes the homebuying process smoother.
9. Lower Insurance Rates & Savings – you may even save enough to get a much nicer home for the same monthly payment.

Tips on What You Can Do Now.

1. Understand Your Credit Report
   • Request a free copy of your credit report from annualcreditreport.com. Review it for errors and dispute inaccuracies.
2. Pay Bills on Time
   • Set up reminders or automatic payments to ensure all bills (credit cards, utilities, loans) are paid on or before the due date.
3. Reduce Credit Card Balances
   • Aim to use less than 30% of your available credit limit. Paying down balances improves your credit utilization ratio.
4. Avoid Opening New Credit Accounts
   • New credit inquiries can temporarily lower your score. Only apply for new credit when necessary.
5. Keep Old Accounts Open
   • Length of credit history matters. Avoid closing old accounts, even if you’re not actively using them.
6. Build Credit Wisely
   • If you’re just starting out, consider a secured credit card or becoming an authorized user on a family member’s account.
7. Settle Collections and Past-Due Accounts
   • Pay off any past-due accounts or negotiate with collection agencies for pay-for-delete agreements.
8. Limit Hard Inquiries
   • When shopping for a mortgage, keep inquiries within a 14- to 45-day period to minimize the impact on your score. 

Better yet, only apply with firms doing “soft inquiries” while shopping for a loan – these do not impact or negatively affect your credit score.

By qualifying here on the House Karma site with our partner Loan Depot it is only a “soft” inquiry, and you will not negatively impact your credit score while getting approved. Applying and qualifying here on our site is fast and easy and will also get you a free copy of your current credit score. 

1. Check Your Credit Regularly
   • Stay proactive by monitoring your credit score through free tools like Credit Karma or apps offered by your bank.
2. Be Patient
   • Improving your credit takes time. Consistently practicing good habits will show results within a few months.

This step-by-step plan, combined with careful budgeting and education on the homebuying process, will set you up for success in securing your dream home.

Credit scores can significantly impact both car and homeowners’ insurance rates.

Here’s how:

Car Insurance

1. Risk Assessment:
   • Insurers use credit-based insurance scores to predict the likelihood of filing a claim. A lower score is often associated with higher perceived risk.
2. Premium Costs:
   • Drivers with good credit scores generally pay lower premiums. Those with poor credit may face significantly higher rates.
3. State Regulations:
   • Some states limit or prohibit the use of credit scores in determining car insurance rates. For example, California, Massachusetts, and Hawaii do not allow it.

Homeowners Insurance

1. Financial Responsibility Indicator:
   • Credit scores help insurers evaluate how responsibly you manage finances, which they link to the likelihood of filing a claim.
2. Policy Pricing:
   • A good credit score can lead to lower premiums, while a poor score may result in higher rates or even policy denial.
3. Coverage Terms:
   • Poor credit might result in more restrictive policy terms or exclusions.

Why Do Insurers Use Credit Scores?

Credit scores correlate with claim frequency and severity. Insurers believe individuals with higher credit scores are less likely to file claims and more likely to pay premiums on time, making them less risky to insure.

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How to Reduce Insurance Costs Regardless of Credit Score

• Shop Around: Compare rates from 95 different carriers directly here on House Karma  (link)  
• Bundle Policies: Combine auto and home insurance for discounts.
• Improve Your Credit: Paying down debt and avoiding late payments can reduce your premiums over time.
• Ask About Discounts: Many insurers offer discounts for safe driving, installing home security systems, or loyalty.

Understanding how credit impacts insurance costs can motivate you to maintain or improve your credit score, saving you money in multiple areas of life!

Experian Boost is a free service that allows you to add positive payment history from utility, phone, and streaming service bills to your Experian credit report, potentially increasing your FICO® Score based on Experian data. 

Impact on Other Credit Bureaus:

• Equifax and TransUnion: Experian Boost does not affect your credit reports or scores with Equifax and TransUnion. The information added through Experian Boost is exclusive to your Experian credit file and is not shared with the other major credit bureaus. 

Considerations:

• Lender Practices: Not all lenders use Experian credit reports; some may rely on Equifax or TransUnion data. Therefore, improvements from Experian Boost may not influence decisions made based on reports from these bureaus.  
• Most will pull what is know as a “Tri-Merge” report meaning that they check all three credit bureaus so it is important to have the best score possible on each.
• Credit Score Models: Even among lenders using Experian data, the impact of Experian Boost depends on the credit scoring model they employ. Some models may not consider the additional information provided by Experian Boost. 

In summary, while Experian Boost can enhance your credit score with Experian, it does not influence your credit reports or scores with Equifax and TransUnion. It’s important to monitor your credit across all three bureaus to maintain a comprehensive understanding of your credit health.

Typical Breakdown of a Credit Scoring Model:

This is straight from Experian:

An overview of all the factors impacting your FICO® Score.

• Payment history – 35% of score
• Amount of debt – 30% of score
• Length of credit history – 15% of score
• Amount of new credit – 10% of score
• Credit Mix – 10% of score

Additional Tips and Tricks to improve your credit and help you get your first home:

Rent Reporting – “alternate credit”: – This can be a big one – many landlords will report your rental payment history to the credit bureaus if you request it. This serves two purposes – first it adds another good payment history to your existing credit, but more importantly if you have few accounts or little long term credit history – rental payments can be used as what is know as “alternate credit” another way to help you qualify for a loan. 

“Alternate Credit”: – other items such as rental payments can be used as credit to underwrite and approve your new home loan. It not only shows that you can make payments on time but how much you have proven that you can afford to spend on housing each month. Although some landlords will report for you if asked – some will not. In this case you need to keep copies of your cancelled rent checks or bank statements if paid by ACH to show that you have paid your rent on time for at least the last 12-24 months. Many times, this can be enough to get your loan approved to buy your first home when you don’t have a lot of other credit in your history.

Paying all bills on time: and adding bills to your credit report by requesting providers report to the credit bureaus. Many do not but will if asked by you. Do this with all of your accounts, cell phone, utilities, streaming, etc. (anything that you have a monthly payment with 

Keep all of your current accounts: – The longer you have had these accounts and the better your payment history the more you can use them to improve your credit score. (Age of accounts is also a factor and the older the better)

The higher your score the better: Although you can almost always get a home loan with a low-down payment with at least a 620 credit score – the higher the better, and ideally 720+ is seen to be best for all things – loan rates, car loans, insurance rates etc.

Credit Utilization: This one can be tricky – as a rule your score credit score will be highest when your usage of available credit is around 6%. If your balances on your credit cards are over 30% of your available credit limits – you can expect your score to go down. Try to keep your balance(s) well below that 30% utilization rate at all times. Your Credit Card Balance makes up almost 1/3rd of your overall credit score and just one card over 30% utilization can cost you 15-20 points!

Obtaining additional credit – (New and more credit cards etc.) Having additional credit cards can actually be a good thing as the more lines / cards you have and the more available credit that you have and don’t use – lowers your utilization rate.  Applying for new cards will usually lower your credit score in the short term but over time it will actually raise your score.

Here is an example:

You have 5 credit cards with a $2000 limit on each – total available credit of $10,000

You owe $5000 across these cards$10,000 limit / $5000 debt = 50% utilization rate – this is very bad for your score (could be as much as 30-40 points)

Paying down that $5000 will lower your utilization rate and improive your credit score.

Alternatively

Applying for and getting more credit cards with additional limits raises your available credit limit and LOWERS your utilization rate – also improving your score

Example:

$25,000 in available credit and the same $5000 balance now gives you an effective utilization rate of only 20% 

Applying for and receiving new credit cards will typically lower your score in the short term but as long as you don’t use them and keep your other balances in check your score will not only come back up but usually be higher than when you started.

A credit score is a “Snapshot in Time”  it changes daily. 

Yes, a good strong credit score can take years to build up, but now with reporting to the credit bureaus being done so fast (sometimes in real time).  Just paying off & settling your collection accounts and/or paying down your credit card debt can actually change your score almost instantly (within 30 days). So improving your credit score is not as hard as you thin and doesn’t take anywhere as long as it used to. 

A Few Warnings:

Applying for new credit – “Hard Inquiries”: Every time you apply for credit – car loans, jet skis, credit cards, etc. It will generate an “inquiry” on your credit report. A lot of inquiries can lower your credit score. When getting ready to buy a home and apply for a mortgage – do not apply for any new credit for at least three months prior to applying for a home loan.

Do not take out any new loans or finance anything – do not buy a car, boat, jet skis, furniture, etc. – or anything until after you get your new home. It could prevent you from getting your own home. You qualify for your home mortgage both by credit and income and more importantly debt load. If you have a lot of debt, be it credit cards, car loans or any other type of installment loan – they count that as part of your overall debt load and this can prevent you from qualifying for the home you want.

Credit Repair Services, Credit Building Apps, Trigger Leads, and Data Brokers: all things you may or may not be aware of – but you need to be careful with. Whenever you use one of these services or Apps, or apply for any type of credit – you become what is known as a “trigger lead” (because you have applied for something) and your information ends up with “Data Brokers” and then usually gets sold over and over again. You will start getting all sorts of so called “offers” by  Mail, Email, and auto dialers (Spam Calls) – It gets annoying quickly and you don’t want to be on these lists. 

Last words of advice.

Remember building good credit and obtaining your first home is a process. It may take a little time. So be patient and work with our House Karma team to make it happen. We will spend as long as we need to with you until you reach your goals and are able to get the home you want.

The more effort that you put in – the nicer home and better deal you will get, and stellar credit should always be seen as part of your overall financial goals.

We here at House Karma are here to make it faster and easier for you!