Building excellent credit saves money long-term, and for many first-time home-buyers, financial preparation can go a long way toward dollars in your pocket. 

But just how does your credit score factor into buying a new home? Well, lenders consider a loan applicant's credit score to determine the interest rate on the mortgage. The higher the credit score, the lower the interest rate, which equals more monthly savings... and everybody wants to save money!

A credit score (also called FICO score) is based upon the following categories: 

  • Payment history - Whether you've made payments on time for previous loans.
  • Amounts owed - How high your balances are vs. the available credit. 
  • Length of credit history - Have you been paying on those previous accounts for long? 
  • Type of credit used - Revolving credit, such as a credit card, vs. installment, which would be like a car loan with fixed payments each month. 
  • New credit - Includes credit inquiries and accounts that have recently been opened.

To improve your credit score, keep careful track of your debt. Use between 20-30% of your available credit to increase your credit score, and be sure to avoid delinquent payments. By staying on top of your credit score before you're ready to buy a home, you're securing a healthier financial future. 

Adapted from this article in real estate news