As the new year approaches, you might be considering purchasing a home. It is an exciting goal to have, and it is never too early to get started. Building a solid credit score is an important step in preparing for homeownership.
Lenders examine your credit to determine your ability to make timely payments, repay debts, and more. It’s also a factor that helps determine your mortgage rate. An article from CNBCexplains:
“When it comes to mortgages, a higher credit score can save you thousands of dollars in the long run. This is because your credit score directly impacts your mortgage rate, which determines the amount of interest you’ll pay over the life of the loan.”
This means that your credit score may feel even more important to your homebuying plans right now because mortgage rates are a key factor in affordability, especially today.
According to the Federal Reserve Bank of New York, the median credit score in the U.S. for those taking out a mortgage is 770. But that doesn’t mean your credit score has to be perfect. An article from Business Insiderexplains generally how your FICO score range can make an impact:
“. . . you don’t need a perfect credit score to buy a house. . . . Aiming to get your credit score in the ‘Good’ range (670 to 739) would be a great start towards qualifying for a mortgage. But if you’re wanting to qualify for the lowest rates, try to get your score within the ‘Very Good’ range (740 to 799).”
Working with a trusted lender is the best way to get more information on how your credit score could factor into your home loan and the mortgage rate. As FICO says:
“While many lenders use credit scores like FICO Scores to help them make lending decisions, each lender has its own strategy, including the level of risk it finds acceptable. There is no single “cutoff score” used by all lenders and there are many additional factors that lenders may use to determine your actual interest rates.”
If you’re looking for ways to improve your score, Experian highlights some things you may want to focus on:
Your Payment History: Late payments can have a negative impact by dropping your score. Focus on making payments on time and paying any existing late charges quickly.
Your Debt Amount (relative to your credit limits): When it comes to your available credit amount, the less you’re using, the better. Focus on keeping this number as low as possible.
Credit Applications: If you’re looking to buy something, don’t apply for additional credit. When you apply for new credit, it could result in a hard inquiry on your credit that drops your score.
A lender will assist you throughout the process, from determining which range your credit score falls into to learning more about the specifics of each loan type.
If you plan to buy a home in the coming year, focusing on improving your credit score may help you get a better mortgage rate when the time comes. If you want to learn more, connect with a trusted lender.
Post a Comment
To post a comment about this blog entry, click here.