December 27, 2023

Get Ready to Buy a Home by Improving Your Credit Score

If the idea of buying a home is on your mind for the new year, there are many things you’ll need to consider on your journey. By setting your goal now, you begin laying the groundwork for homeownership. The first step to prepare you is building your credit score.

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Eligibility

Lenders review your credit to assess your eligibility to borrow money, your ability to make payments and pay back debts, and more. Your credit score is also a factor in determining your mortgage rate. As CNBC explains:


When it comes to mortgages, a higher credit score can save you thousands of dollars in the long run. This is because your credit score directly impacts your mortgage rate, which determines the amount of interest you’ll pay over the life of the loan.[1]


Your credit score may feel ever more important to your homebuying plans since mortgage rates are a key factor in affordability.


Credit

According to the Federal Reserve Bank of New York, the median credit score in the U.S. for those taking out a mortgage is 770.[2] But that doesn’t mean your credit score has to be perfect. An article from Business Insider explains how your FICO score range can make an impact:


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).[3]

a man is handing a stack of money to another man .

Working with a trusted lender is the best way to get more information on your credit score could factor into your home loan and the mortgage rate. As 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.[4]

a man and a woman are sitting on a couch looking at papers

Improving

If you’re looking for ways to improve your score, Experian highlights some of the things you might want to focus on[1]:


  • Your Payment History: Late payments can have a negative impact by dropping your score. Focus on making payments on time and paying any existing late charges quickly.
  • Your Debt Amount (relative to your Credit Limits): When it comes to your available credit amount, the less you’re using, the better. Focus on keeping this number as low as possible – under 30% utilization is best.
  • Credit Applications: If you’re looking to buy something, don’t apply for additional credit. When you apply for new credit, it may result in a hard inquiry on your credit that can temporarily drop your score.


A lender will help you navigate the process from start to finish, from assessing which range your score falls in to telling you more about the specifics for each loan type.


As you set your goal to buy a home in 2024, focus on boosting your credit score to help your future mortgage rate. If you want to learn more, speak with a trusted lender.



Related Article: Why Home Prices are Going Up

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