Knowing Your Credit Score

When preparing for a major purchase like a home, it's always best to know and understand your credit score.

A credit score is a number typically between 300 (poor) and 850 (excellent) that reflects your creditworthiness, or how likely you are to repay borrowed money. It's crucial because lenders use it to decide whether to approve loans and what interest rates to offer. Your credit score is calculated based on several factors, such as payment history, amount owed, length of credit history, credit mix and new credit.

If you have a low credit score, lenders may decline to offer you a loan, or may include a high interest rate.

To check your credit score before a major purchase, request your credit report from the major bureaus. You're entitled to one free report from each bureau (Equifax, Experian, TransUnion) every 12 months. Review your report for accuracy. Monitoring your credit report also helps you to detect any potential fraudulent activity.

The most important factor in your credit score is paying bills on time. Setting up automatic payments or reminders to avoid late payments. Even one missed payment can hurt your score. Also reduce credit card balances. Keep credit utilization ration below 30% (ideally under 10%) of your credit limit. Pay down balances quickly to improve your score.

Maintaining a good credit score will improve your chances of getting approved for a mortgage and lower interest rates, which will save you thousands over time.