So you want to buy a house someday? If you are getting a loan to purchase the home, your credit score is very important! This is a series of blog posts I’m writing specifically aimed at young adults or other first time home buyers.
Credit scores are a big mystery to many millennials, but they don’t have to be! An important topic like this deserves at least a basic understanding. So here’s where we’ll start…
- Why does it matter?
Whether you are applying for a loan, getting a background check at a new job, ordering cable/internet, or trying to rent an apartment, your credit score will be checked. A high credit score is good, meaning you are more likely to be approved and at better rates. A low credit score means you either don’t have a long history of making payments, or you have missed/late payments. A low credit score will make it more difficult to get approved or pass the credit checks.
- Credit Score vs. Credit Report
A credit score is a number from 300-850 that acts like a grade. 850 is an A+, and 300 is…not good. A credit report outlines the facts that the score is based on. The credit report details the credit accounts you have open (credit cards, loans etc), as well as credit inquiries.
- Hard vs Soft inquiries
If someone checks your credit, it is either a “hard” or “soft” inquiry. A hard check is recorded on your credit report, and will negatively impact your credit score. Normally you have to authorize a hard credit check. Some examples of when a hard inquiry is needed: applying for a mortgage, applying for a new credit card, or applying for a new auto/student loan.
A soft inquiry can occur without your permission, but does not affect your credit score. Examples of soft inquiries: Checking your own score, pre-approved credit card offers, background checks (at a new job for example).
This is part 1 about credit scores, stay tuned for additional insights into the credit process!