Credit Climb: Elevating Your Home Buying Journey with a Stronger Score
As the new year approaches, the prospect of purchasing a home may be on your agenda. It's an exciting objective to pursue, and it's never too early to commence the groundwork. A vital step in preparing for homeownership is establishing a robust credit score.
Lenders scrutinize your credit to evaluate your capability to make timely payments, settle debts, and more. Additionally, it plays a role in determining your mortgage rate, as outlined in an article from CNBC.
“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.”
In the current scenario, with mortgage rates being a critical component of affordability, your credit score holds even greater significance in your plans for homebuying.
The Federal Reserve Bank of New York reports that the median credit score for individuals obtaining a mortgage in the U.S. is 770. However, perfection isn't a prerequisite. As detailed in a Business Insider article, your FICO score range generally influences the 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).”
Collaborating with a reputable lender is the optimal approach to gain insights into how your credit score might influence your home loan and mortgage rate. As per 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.”
If you’re looking for ways to improve your score, Experian highlights some things you may want to focus on:
- 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.
- Credit Applications: If you’re looking to buy something, don’t apply for additional credit. When you apply for new credit, it could result in a hard inquiry on your credit that drops 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 sights on buying a home in the upcoming year, a focus on boosting your credit score could help you get a better mortgage rate when the time comes. If you want to learn more, connect with a trusted lender.