Your credit score is based on multiple variables that are dependent on your credit and amount of money loaned out to you.
Like - historical payments, time you have had an account, types of accounts and age of account
Your credit, or more appropriately addressed as the ability for you to pay back the money that has been loaned to you, whether it be through a credit card, mortgage, home equity loan, car, RV, boat, motorcycle, rental apartment or town home, or just about anything that involves you paying back money trustingly for the items you have purchased or pay for on a monthly basis.
When your credit score is accumulated, each item is passed through a system where points are either awarded or deducted based on the status of the terms.
For example, if you have a specific amount in a loan, and you are paying consistently and on time, then you will be awarded positive points. However, if you are late on payments, and have many credit cards close to maximum limit, perhaps have not made every house, car, or RV payment, on time, then you will be deducted points.
The computer program evaluates the awarded points and deducted points to come to a total. This total can range from around 330 to the lower 800's. This score is used to evaluate if you can make your payments and on time. There is usually a clear relationship between those that pay on time with a higher score and those that pay late with a lower score.
Those people with a higher score, above about 680 are capable of paying back the loans that they take out. However, those who have a score below 680 are less capable of paying back their debts on time. Lenders use this information to determine the terms of your mortgage when buying a home. If your credit score is up to par, you can expect a lower interest rate, shorter terms, and less fees. However, if your credit score is below the average, then you can expect to have a higher interest rate, more fees, and possibly more expenses that are associated with the lender taking a greater risk with a person that may not be capable to pay back the mortgage in a timely basis.
So as a result, your credit score is a huge influence in the mortgage terms that you can qualify for. Because of this, you should try to clean up your credit score to the best of your ability. This means paying back loans, paying on time, and closing out any credit cards that are not necessary in your financial situation. There are many things that actually affect your credit score. Keep in mind that if you pay on time and are on top of the debt that you have, having some debt and credit is a beneficial thing.
If you can prove that you can handle debt, and pay on time and towards the principal amount, then you will not have as many problems. If you have too many delinquencies, a short credit history, too many revolving accounts, too few revolving accounts, balances that are close to maximum, too many accounts, and of course major problems such as tax liens, judgments and bankruptcies, then you can expect your credit score to be lower than average.
In order to repair these credit issue to get the mortgage rate that you deserve, be sure to handle any debts or payments that might deduct points from your score. Pay above the minimum, on time, and you will quickly see your credit score increase as the problems are depleted. The basics for having a decent credit score is to not have too much debt, pay your debt on time, and not have too high of interest rates! If you feel you need to correct some issues on your credit score, then do it! You can end up saving thousands of dollars! Do not buy a home until you are financially stable and capable of maintaining a house. You do not want to take on something that you can not handle financially.