If you want tobuy a home, you should know your credit score is a critical piece of the puzzle when it comes toqualifying for a mortgage. Lenders review your credit to see if you typically make payments on time, pay back debts, and more. Your credit score can also help determine your mortgage rate. An article fromUS Bankexplains:
A credit score isnt the only deciding factor on your mortgage application, but its a significant one. So, when youre house shopping,its 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 yourhomebuying plansright now sincemortgage ratesare a key factor inaffordability. According to theFederal Reserve Bank of New York, the median credit score in the U.S. for those taking out a mortgage is770. But that doesnt mean your credit score has to be perfect. The same article fromUS Bankexplains:
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, butyou dont need that score or above to buy a home.
Working with a trusted lender is the best way to get more information on how your credit score could factor into your home loan and the mortgage rate youre able to get. AsFICOsays:
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 youre looking for ways to improve your score,Experianhighlightssome 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 youre using, the better. Focus on keeping this number as low as possible.
- Credit Applications:If youre looking to buy something, dont apply for additional credit. When you apply for new credit, it could result in a hard inquiry on your credit that drops your score.
Bottom Line
Finding ways to make your credit score better could help you get a lowermortgage rate. If you want to learn more, talk to atrusted lender.
