Why Your Credit Is Important

Credit is a financial tool that enables you to buy things now without paying for them all at once.  Your ability to use credit responsibly and repay creditors on time has a lot to do with how much access to credit you will have in the future.  Building a solid credit history gives you more buying power when you need it, and that can be especially valuable when you are buying a home. 

How credit affects your loan options
When you apply for a mortgage, the lender will evaluate your credit history to see how you have managed credit in the past, and then use that information to determine how likely you are to keep up with payments in the future.  By predicting how well you will manage your debt, the mortgage company can measure the risk involved with lending you money.

Everything else being equal, someone who has consistently made payments on time is a lower credit risk than someone who has not.  Because lenders usually offset risk with higher financing charges, having a better credit history generally means getting more favorable loan terms.  And because some loan options are riskier than others, good credit may give you more flexibility in structuring your mortgage.

Buying a home when you've had credit challenges
Many people believe that they can't buy a home unless they have great credit. While it's certainly helpful, a flawless credit history is not a requirement for buying a home.  In fact, homeownership can be a tool for getting past credit difficulties. 

Buying a home gives you an opportunity to improve your financial situation by:

• Establishing a strong payment record. Paying your mortgage on time every month goes a long way toward showing creditors that you can manage debt effectively.
• Building wealth for your future.  Each time you make a mortgage payment, not only do you improve your credit, you also build home equity that you can leverage to reach your goals.