Buying a home is likely one of the biggest investments you’ll ever make, meaning your credit score is one of the most important factors to consider. With mortgage rates being a key factor in affordability, it’s no wonder why your credit score, with its ability to affect loan terms and interest rates, is essential in securing a mortgage. In this blog post, we’ll dive into why your credit score is even more critical now in the ever-changing market, and some practical ways you can start improving your credit score today.
The median credit score for those taking out a mortgage in the US is 770, according to the Federal Reserve Bank of New York, but less-than-stellar credit doesn’t necessarily mean you won’t be able to obtain a mortgage. Your FICO score range can make an impact.
If you have a higher credit score, you may have access to better loan terms and interest rates that can save you thousands of dollars over the life of your loan. But don’t be discouraged if your credit score is less than perfect. There are ways to improve your credit score and still secure a favorable loan.
One crucial factor that affects your credit score is your payment history. Late payments can have a negative impact by dropping your score. A tip to improve your payment history is to focus on making payments on time and paying any existing late charges quickly. The more timely your payments are, the less of a negative impact it will have on your credit score.
Another key factor is your debt amount relative to your credit limits. The less you’re using, the better, and it’s recommended to keep this number as low as possible. By paying down your existing debt and keeping balances low on any credit cards, you’ll show lenders that you’re responsible with your finances and can improve your credit score.
Lastly, be mindful of applying for additional credit. Each time you apply, it could result in a hard inquiry on your credit that drops your score. It’s best to limit new credit applications when possible, especially when you’re in the process of securing a mortgage.
Buying a home is a long-term investment, and with the current market conditions, your credit score is more important than ever before. By focusing on improving your payment history, keeping your debt amounts low, and limiting your credit applications, you’re well on your way to securing a favorable loan. While it can take time and effort to improve your credit score, the benefits are endless when it comes to securing a mortgage, from lower interest rates to better loan terms. So start working on your credit score today and begin your journey to becoming a homeowner with confidence.