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Do Credit Scores Matter When You're Buying a Home
If there's one aspect of buying a home that our real estate agents get asked about more than any other, it would have to be credit scores. How much does your credit really matter when you're trying to secure a loan and buy a house?
The importance of your credit score depends on a variety of factors – some financial institutions weigh credit more heavily than others – but it definitely matters. Here's what you need to know about your credit score before buying a home.
Knowing the Score
Credit scores are usually calculated using the Fair Isaac Corporation (FICO) model, which grades your credit on a scale from 300 to 850 points. Looking at it from a lender's point of view, a higher score means that you're a lower financial risk, which means that they're more likely to offer you a loan. Scores are determined using these factors, in order of descending importance:
- Payment History: Do you have a strong history of making payments on time?
- Amounts Owed: How many lines of credit do you have, and how much do you owe on each one?
- Length of Credit History: How long have you been using credit?
- New Credit: Have you recently opened any credit accounts, and how many?
- Types of Credit Used: What combination of credit cards, retail accounts, loans and other types of credit do you have?
Generally, a score of around 750 or higher is considered excellent. If you're in that range, you should have no trouble securing a loan. Below that, every lender has their own standards, and how your score impacts your ability to get a mortgage depends on the specific lender.
That being said, a score from 700 to 749 is usually considered "good," and a score between 650 and 699 is considered "fair." Anything lower than 650, and you're in the "poor" range, and that spells trouble. The farther below 700 your credit falls, the more hesitant lenders will be to work with you, and the higher your interest rate is likely to be if you are offered a loan.
Improving Your Credit
If your credit isn't where you'd like it to be, there are a lot of things you can do to fix it. Improving your credit makes it easier to get a mortgage, and makes it more likely that you'll get a lower interest rate, so it's definitely worth taking the time to rebuild your credit. Here's what you can do, starting right now:
- If you don't already have a credit card, consider getting one. Use it sparingly and pay your bills on time to establish credit if you don't already have it.
- Get a free copy of your credit report and look for errors that may be impacting your score.
- Work on paying your debts. If you have a low credit score, this is the most effective way to fix it. Start on the smallest debts, and then work your way up to the larger ones.
- In addition to the amount you owe, consider your credit utilization rate – the amount you owe vs. your available credit – which should ideally be less than 30 percent.
- Talk to our agents today about other ways you can improve your credit.
From securing a loan to finding perfect Augusta homes for sale, our team at Sprague & Curtis Real Estate is here to help every step of the way. Contact us today to learn more about how we can help you find your dream home and make it yours.