So you’re tired of renting and want to buy a house, but the lender wants to check your credit score. It’s important to know what the lender sees when they look at your score. Your credit score tells the lender how much risk they will take in approving your loan to lend you the funds to buy your home. The higher your credit score, the less risk a lender thinks they are taking and the better the interest rate you will receive for your purchase.
We’ve all read the ads that say “buy a house with a credit score of 500”, well let’s look at what a lender sees when they look at a credit score. Although there is no actual score that will disqualify you for a mortgage, the objective of the exercise is to raise your credit score as high as possible, as this will allow a lender to consider your credit history. payment as less risky for his institution. The required credit score also depends on the institution and the type of loan. Conventional loans can typically qualify at a 620 credit score, and others may be lower but be willing to pay a higher interest rate.
Let’s look at a general guide to credit score rankings, although Experian, FICO and others may measure scores differently, here’s a general breakdown:
- Exceptional: 800+
- Very well: 740 – 799
- Good: 670 – 739
- Fair: 580 – 669
- Poor: 579 and under
If your desire is to buy a home and your credit score is poor, you may need to exercise patience, diligence, and goal setting to achieve that goal. Can this goal be achieved, of course. Getting your credit score back on track is a good sign to lenders that you are now ready and worth the risk.
Some things you can do to improve your credit score are, don’t miss payments or make late payments. Making payments on time is one of the most important facets that will be used to calculate your credit score. So please, if you need to, set your payments to automatic payments to ensure they are paid on time. Apply for a new credit card will take a big hit to your score, which will cause your score to drop, but keeping the balance below 30% and making payments on time will help boost your score and continue where you want to go. Do not close existing credit cards, as this account will be used to calculate your credit score while you continue to make payments on time. Remember to keep the balance low and/or pay the balance monthly, but a recurring payment is required to increase your score. Please do not increase your credit limit. If your balance is 30% or less than the credit card limit and your payments are made on time, this will help boost your score. This means that if your credit limit is $1,000, you should keep your spending below $300 each month. Once your credit score increases, you will see better interest rates and offers available to you. Prayerfully, my little nuggets are helpful to you, but keep in mind these are just a few suggestions to help you buy a home, and as always, seek out a trusted real estate agent with any questions or concerns.