Thinking about buying a home soon? One of the first things to think about is the state of your finances. Do you have enough saved up for a downpayment? Are you confident about getting a loan pre-approval? Do you have a high enough credit score?
In this article, we’re going to talk about what credit score you need to get a better chance of securing a home loan and tips on how to get there.
What’s Your Credit Score?
First things first, do you know what your credit score is? If you do, great! You can move on to the next part. If you don’t you can go to AnnualCreditReport.com to get a FREE credit report. It’s authorized by Federal law to give you a free copy of your credit report every 12 months from each credit reporting company.
You can also go to myFICO.com to learn your FICO score for a small fee. Your FICO score is based on the consumer credit files of the three credit bureaus and is often used as a determining factor when you’re applying for a loan. The higher your FICO score is, the better your odds of getting pre-approved.
Why Do You Need to Improve Your Credit Score?
Simply put, your credit score plays a major role in your odds of getting a home loan pre-approval and with a good interest rate. This graphic can show you a rough estimation of your credit score affects your chances of getting pre-approved.
Note that a low credit score doesn’t just hurt your chances of getting a mortgage pre-approval, it can also give you a much higher interest rate! So even if you get pre-approved, you will end up paying more than if you had a higher credit score.
Tips on Improving Your Credit Score
Now that you know how much weight your credit score carries when it comes to home buying, here are a few tips on how to improve it.
Pay your bills on time.
One of the simplest ways to retain a good credit score is to just pay your bills on time every single month. It’s nothing groundbreaking, but a good history of on-time payment signals lenders that you’re a low-risk debtor.
Pay off your balances.
Just because you’ve got missed or late payments and outstanding balances doesn’t mean it’s too late to get back on track. Pay off these debts, and keep your balances low from then on.
Don’t close a balance.
Don’t think that closing delinquent accounts means that you can get away with a bad credit history. A closed account can still show up on your report and affect your score. Don’t close old, unused accounts either because this could hurt your credit history length.
Make sure your scores are accurate.
Think your scores are always going to be correct? Think again. Errors on credit reports are pretty common, so don’t just take their word for it. Carefully check your report and dispute any errors you find.
Leave old debt on your report.
Don’t phone your bank to get rid of a paid home or car loan! You should be aware that there’s such a thing as good debt. If you have a history of paying off a loan responsibly, this could boost your credit score.
Having a high credit score is important for home buyers, so make sure to follow the tips above if you’re looking to improve yours!
Want more tips on getting a mortgage pre-approval? We’d be happy to help. Get in touch with us and let’s discuss your options.