What Homebuyers Need To Know About Credit Scores

If you're considering purchasing a home, you should be aware that your credit score is an important piece of the jigsaw when it comes to qualifying for a home loan. Lenders examine your credit to determine your capacity to make timely payments, repay debts, and other factors. It is also a factor in determining your mortgage rate. According to a Bankrate article:

“Your credit score is one of the most important factors lenders consider when you apply for a mortgage. Not just to qualify for the loan itself, but for the conditions: Typically, the higher your score, the lower the interest rates and better terms you’ll qualify for.”

Because mortgage rates are a crucial component in affordability, especially today, your credit score may feel even more vital to your homebuying ambitions right now. According to the Federal Reserve Bank of New York, the median credit score for persons applying for a mortgage in the United States is 765. However, this does not imply that your credit score must be flawless. A Business Insider article illustrates in general how your FICO score range can affect you:

“. . . 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 reputable lender is the best way to learn more about how your credit score may affect your home loan and the mortgage rate you can obtain. According to FICO:

“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.”

Experian recommends the following areas to focus on if you want to increase your score:

▪ Payment History: Late payments might have a negative influence on your credit score. Pay attention to making payments on time and paying any current late fees as soon as possible.
▪ Your Debt Amount (in Relation to Your Credit Limits): The less you use your available credit, the better. Make an effort to maintain this number as low as feasible.
▪ Credit Applications: If you're looking to buy, avoid applying for additional credit. When you apply for new credit, your credit score may suffer as a result of a rigorous inquiry.
When you're ready to begin the home-buying process, a lender can determine which range your credit score fits into and tell you more about the nuances of each loan type.

In conclusion
With today's affordability issues, prioritizing ways to improve your credit score could help you receive a better mortgage rate. If you want to learn more, speak with a reputable lender.

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