Get Ready To Buy a Home by Improving Your Credit Score
As the new year approaches, you may be contemplating the idea of purchasing a home. Setting such a goal is exhilarating, and it’s never too early to begin laying the groundwork. One vital step in preparing for homeownership is establishing a strong credit score.
Lenders scrutinize your credit to evaluate your punctuality in making payments, repaying debts, and more. Additionally, your credit score plays a significant role in determining your mortgage rate. An article from CNBC elaborates on this point, stating, “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.”
Given that mortgage rates are a pivotal factor in affordability, especially in today’s market, your credit score assumes even greater importance in your homebuying plans.
According to the Federal Reserve Bank of New York, the median credit score in the U.S. for those securing a mortgage is 770. However, having a perfect credit score is not a prerequisite. An article from Business Insider explains that aiming for a credit score in the “Good” range (670 to 739) is a commendable start for qualifying for a mortgage. For those aspiring to secure the lowest rates, targeting a score within the “Very Good” range (740 to 799) is advisable.
To gain more insight into how your credit score may impact your home loan and mortgage rate, collaborating with a trusted lender is recommended. As FICO emphasizes, while many lenders use credit scores like FICO Scores in their decision-making, each lender has its own strategy and risk tolerance, making a universal “cutoff score” nonexistent. Various factors, beyond credit scores, influence actual interest rates.
For those looking to enhance their credit score, Experian provides some focal points:
Payment History: Timely payments are crucial, as late payments can adversely affect your score. Prioritize making payments promptly and settling any outstanding late charges.
Debt Amount (relative to your credit limits): Keeping your credit utilization low is beneficial. Strive to minimize the amount of available credit you are using.
Credit Applications: Avoid applying for additional credit when contemplating a purchase. New credit applications may result in hard inquiries that can temporarily lower your score.
A knowledgeable lender can guide you through the entire process, from determining the range your score falls within to providing specific details for each loan type.
Bottom Line
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.
