If you want to buy a home, understand that your credit score is critical when qualifying for a mortgage. Lenders review your credit to see if you typically make timely payments, 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 plans to buy a house since mortgage rates are a key factor in affordability. Success in today’s housing market often begins with a good grasp of how lending works. 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 can 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): Regarding your available credit amount, the less you use, the better. Focus on keeping this number as low as possible.
- Credit Applications: Don’t apply for additional credit if you want to buy something. When you apply for new credit, it could result in a hard inquiry on your credit that drops your score.
Bottom Line
Improving your credit score could help you get a lower mortgage rate. If you want to learn more or discuss with a trusted mortgage lender, contact experts at KM Realty Group LLC, Chicago, Chicago for a better understanding.
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