If you’re considering buying a home, you should know that your credit score is an important piece of the puzzle when it comes to getting a mortgage. Lenders will usually check your credit if you make your payments on time, repay your debts, etc. Your credit score also helps determine your mortgage interest rate. The US Bank article explains:
“A credit score isn’t the only deciding factor on your mortgage application, but it’s a significant one. So, when you’re house shopping, it’s important to know where your credit stands and how to use it to get the best mortgage rate possible.”
This means your credit score may be even more important to your current home buying plans, as mortgage rates are a major factor in affordability. The average credit score for a US mortgage borrower is 770, according to the Federal Reserve Bank of New York. However, this does not mean that your credit score has to be perfect. The same article from Bank of America explains:
“Your credit score (commonly called a FICO Score) can range from 300 at the low end to 850 at the high end. A score of 740 or above is generally considered very good, but you don’t need that score or above to buy a home.”
Working with a trusted lender is the best way to learn more about how your credit score plays a role in the home loans and interest rates you can qualify for. 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 a few things to keep in mind.
Payment History: Late payments can have a negative impact by lowering your score. Focus on paying on time and paying arrears promptly.
How much you owe (versus your credit limit): The less you use, the better. Focus on keeping this number as low as possible.
Apply for credit: If you want to buy something, don’t apply for additional credit. When you apply for a new loan, your credit may be subject to a strict check, which can lower your score.