Buying a new home requires plenty of preparation. One of the best ways you can prepare to buy a home is to know your credit score, the importance of your credit score as it relates to home buying and steps on how you can improve it.
Your Credit Score is Based On
- Your payment history
- The amount of your total debt, including credit cards, student loans, and car loans
- How long and how well you’ve been using credit
- How often you apply for new credit
- The types of credit you currently use (credit cards, retail accounts, mortgages, etc.)
Late payments, credit cards that are at or exceeding their limit, and applying for multiple credit cards in a short period of time can lower your credit score. Keeping credit card balances low and paying your bills on time, as well as managing multiple accounts properly, will likely increase your score.
Why is it Important?
Credit scores have a great impact on the type of loans and interest rates you will be qualified for. Credit scores range from 300-850. A good score that will qualify borrowers for the best rates typically starts at 740 for most lenders. Once you start getting around the 660 mark and below, it gets more difficult to secure a loan at all, let alone one with a decent interest rate and without hidden fees.
What Can You do to Ensure You Secure a Loan with the Best Interest Rate?
It is recommended to start checking your credit score about a year before you hope to buy a home. This will give you time to correct errors and improve your credit score. Be sure to scrutinize everything on your credit report, including the spelling of your name and your previous addresses. You should also be sure that all of your credit accounts are listed, with their current status and history accurately accounted for.
If all of your information is correct, it’s time to move on to improving your credit score. The best way to do this is to stay on top of your payments and keep your balances as low as possible. It’s also helpful not to apply for any additional new credit if possible before buying a house, as multiple new accounts can decrease your credit score.
Once you have selected your lender, it’s time to do your own due diligence. It does not hurt to ask the lender which credit scores they are looking at, and what score you need to qualify for their best rate. If you check the score the lender is using and see that you are a few points shy of qualifying for the best rate, it may be worth the time to raise that credit score before moving forward with the loan. A mere point or two could stand between you and thousands of dollars that could be saved from having a lower interest rate!
Once you’re ready with your credit score, contact Falvey Real Estate Group and let us help you find your dream home!