If you are in the market for your first home, one of the first things you must do is determine how much house you can afford. Can your income support the $400,000 to $500,000 house of your dreams, or do you need to aim a bit lower? Should you stick to a more affordable starter home, or can you afford a bit more if you sacrifice some luxuries?

There are a number of things that go into the calculation to determine haw much you can realistically afford to spend on that critical first home. You obviously need to know how much the home costs, but you also need to decide on the length of your mortgage. Is a 15-year low, with Its lower interest rate, doable, or will you need to go out 30 years to make the payments affordable.

The last, and perhaps most important, part of the affordability equation is the interest rate itself, and that part of the picture can be quite variable. Even when interest rates are at historic lows, some buyers will be charged more than others. In most cases, the buyers with the lowest credit scores will be the ones paying the highest Interest rates. Those higher Interest rates can make even a humble starter make homes not affordable, shattering the home ownership dreams of countless young families if you want to make home buying more affordable, you need to take a hard look at your credit score.

There are steps you can take to raise your credit score and ultimately lower the Interest rate you will have to pay on your mortgage. Even if you already own a home, you may be able to refinance into a lower interest rate mortgage, provided you can improve your credit score before you start the application process By paying down your existing debt and working hard to make your payments on time, you can raise your credit score over time, and save thousands of dollars In Interest charges In the process. Raising your credit score is not something that can be done quickly, and it is not always easy. Over time, however, you should be able to raise your credit score significantly by paying down your existing debt, avoiding new debt and paying all your bills on time.

You may be able to raise your credit score more quickly If you find an error on your credit report, so that should be your first course of action. Mistakes do happen, and when they do, your credit score could suffer unnecessarily. If you think your credit score is lower than it should be, pull a copy of your credit report and go over it carefully. If you spot any errors, like paid-off debts still listed as active, contact the credit reporting agency immediately and ask that the erroneous entries be removed. If you are successful, you could see an Immediate boost to your credit score, and a similar reduction in your quoted mortgage rates.

For the vast majority of first-time home buyers, purchasing a home means taking out a mortgage, and that means paying dose attention to Interest rates and credit scores If your credit score is less than optimal, taking steps to raise It now could save you a lot of money over the next 15 to 30 years.

A lot of people are confused when it comes to their credit score and many mistakenly believe that having fewer lines of credit will result in a higher score. In reality, these people are often worse off compared to their peers with four, five, or six credit cards. In general, the more lines of credit an individual has the higher their credit score. But, It’s Important to understand why there are some exceptions to this guideline. Revolving credit/credit cards. First, Its worth noting that there are seven types of credit that Impact a credit score.

An established limit of available credit that can be used, paid-off, and used again an unlimited number of times Credit cards are a good example. someone borrows $500, pays off their card, and then has $500 available again to borrow. The other common type of credit, known as installment credit, is a fixed amount that is borrowed and paid off In Installments. Mortgages and school loans are excellent examples With Installment credit, people are usually not able to continue borrowing against the credit once It Is paid off.

How many cards should I have?

Credit scores are partially calculated based on how much credit is used compared to how much is available. This is known as the debt-to-credit ratio. For example, if someone has one credit card with a $1,000 limit and has charged $500 worth of purchases, their debt-to-credit ratio Is 50% (because 500/1000 =.50). This ratio is calculated based on all the revolving credit lines an individual has So, if a person has two credit cards that each have a $1,000 limit and they have spent $1,000, their debt-to-credit ratio is still 50% (because 1000/2000 = 60) even though they have more debt.

Thanks for reading ArthaMoney’s series on budgeting.