What To Know About Credit Scores Before Buying a Home

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If you want to buy a home, you should understand that your credit score is an important factor in qualifying for a mortgage. Lenders check your credit to see if you usually make on-time payments, pay off debts, and so on. Your credit score can also affect your mortgage rate. An article from the US Bank 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.”

That means your credit score may feel even more important to your home-buying plans right now, as mortgage rates play a significant role in affordability. According to the Federal Reserve Bank of New York, the median credit score in the United States for those seeking a mortgage is 770. That said, your credit score does not have to be perfect. The same article from the US Bank 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 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 get. As FICO states:

“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 suggests some things you should focus on:

  • Your Payment History: Making late payments can lower your credit score. Make timely payments and pay any outstanding late fees as soon as possible.
  • Your Debt Amount (Relative to Your Credit Limits): The less credit you use, the better. Concentrate on keeping this number as low as possible.
  • Credit Applications: If you intend to buy something, do not apply for additional credit. When you apply for new credit, it may result in a hard inquiry on your credit, lowering your score.

Bottom line.

Finding ways to improve your credit score may help you get a lower mortgage rate. If you want to learn more, speak with a reputable lender.

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