What To Know About Credit Scores Before Buying a Home

If you want to buy a home, you should know your credit score is a critical piece of the puzzle when it comes to qualifying 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 from 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 homebuying plans right now since mortgage rates are a key factor in affordability. According to the Federal Reserve Bank of New York, the median credit score in the U.S. for those taking out a mortgage is 770. But that doesn’t mean your credit score has to be perfect. The same article from 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 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 you’re able to get. As FICO says:

“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.

The Sooner the Better

A trusted lender partner told me recently, “Before embarking on the journey of homeownership, it’s crucial for potential buyers to understand the significance of knowing their credit score well in advance of needing a loan. Your credit score plays a pivotal role in determining your eligibility for a mortgage and the interest rate you’ll receive”.

By obtaining your credit score early, you can identify any issues or discrepancies that may exist and take proactive steps to address them. Whether it’s resolving outstanding debts, correcting errors, or establishing healthier credit habits, tackling these matters ahead of time can potentially save you thousands of dollars over the life of your loan.

Keep in mind that repairing poor credit isn’t an overnight process; it typically takes several months of consistent effort to see significant improvement. Therefore, the sooner you check your credit score and start working on improvements, the better positioned you’ll be to secure favorable financing terms when the time comes to buy a home.

Bottom Line

Finding ways to improve your credit score could help you get a lower mortgage rate. It can take months to make changes to your score, so the earlier you start, the better your score could be. Don’t fear how a hard credit inquiry will affect your score, as it’s only a few points that will come off in a short time.

If you want to learn more, I can help connect you to a trusted lender who will give you a no obligation consultation to review your current score and offer tips to get you the best terms.

Let’s start the conversation about how you can afford to enter the real estate game!

What To Know About Credit Scores Before Buying a Home