Buying a House? Here’s What You Need to Know About Credit Scores.
Credit score worry is incredibly common among first-time home buyers. Is your score good enough to secure a loan? Can you boost your credit score before you buy a home? What’s a “good” number? In this article, we try to answer the most common questions about credit scores to help you understand what you need to do in order to secure a loan.
How is my credit score determined?
Before we dive into what lenders need, let’s talk about the basics. As in, what is your credit score made up of? There are quite a few factors that go into your credit score, including…
The good news is each of these factors allows you to improve your credit score. Avoid outstanding late payments, keep accounts open, and try to keep debt low (if possible). More on that below.
Why do lenders need my credit score?
Lenders use credit scores to assess risk when considering a loan. Based on how much debt you have, whether you’ve paid off loans consistently, and your current credit status, lenders can predict how likely you are to pay off your home loan. For this reason, your interest rate is also tied to your credit score – buyers with higher scores tend to secure lower interest rates.
What’s a “good” credit score?
First, it’s important to know mortgage lenders are required to follow rules when reviewing mortgage loan applications. There isn’t one secret number that will guarantee you a loan, nor is there a specific number needed for each type of loan. There are four main loan types – here are the minimum credit scores you need to secure each one:
Each of these loans has other requirements, so you’ll need to weigh your options carefully and make sure you qualify for the type of mortgage loan you’re after.
How can I raise my credit score?
Considering how important your credit score is, it’s not always easy to find helpful information on improving your score. But that doesn’t mean it isn’t possible. Here are a few tips to raising your credit score:
What else will lenders need to know besides my credit score?
In addition to your credit score, lenders will ask for additional information to determine the risk level of providing you with a mortgage loan, as well as your ability to pay back a loan. Here are a few other factors lenders will be interested in:
Your credit score allows lenders to understand your financial health. But if your score doesn’t meet the minimum to secure a mortgage loan or a lower interest rate, don’t worry. You can raise your credit score by following the tips above. Just remember to be patient – it can take six months for changes to appear on your credit report. Regularly check in on your score, pay attention to ways you can raise your score, and ask for help when needed, and you’ll be ready to take out a mortgage loan in no time.
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