When you buy a house and get a mortgage, the purchase price isn’t really what you pay. The true cost of the house is the amount you pay in interest to the mortgage lender.
If you get a better interest rate from the lender, your payments will be lower. Those with the best credit get the best loan terms.
It is therefore essential to improve your credit score before buying a house. It’s not so much what credit score is needed to buy a house but which scores will give you the best conditions.
There are a few things you can do to improve your credit score to qualify for a loan to buy a home. By following these simple steps, you can increase your credit score by up to 50 points in a relatively short time.
Let’s dive in and take a look.
Why is your credit rating so critical when buying a home?
When your credit rating is low, you may not be able to get a mortgage. The majority of all lenders will not grant you a loan when your score is below 620.
If you’re lucky, you may be able to get a traditional FHA or FHA 203k loan with a score below 620. So, in order to increase your loan options, it becomes crucial to work on improving your scores.
Your credit score is an important factor in determining your mortgage rate. The better, the lower your interest rate and monthly mortgage payments will be.
If your credit score is below average, increasing it can help you save money on interest rates. But even if your score is good, increasing it could save you thousands of dollars in interest payments over the life of the loan.
By increasing your credit score by just 50 to 60 points, you could save tens of thousands of dollars over the life of your mortgage.
Credit scores become especially important when you’re buying a low-income home.
What is a good credit rating?
What do lenders and credit institutions consider a good credit rating? The majority of lenders will view a borrower more favorably when their credit is above 670. If you can get your scores above 740, your credit score is considered very good. Anything above 800 is exceptional.
Each step on the credit ladder will help you lower the interest rate a lender is willing to give you.
How do you check your current credit score?
Everyone has the right to check their credit score once a year for free. Each of the three major credit bureaus, including Experian, Equifax, and Transunion, will provide you with a free credit report. Just ask them to send it to you by going to their respective sites.
It is essential that you review your credit reports annually to ensure there are no errors. Credit report errors can lower your scores. Many people have bad credit and don’t even know it.
How to quickly raise your credit score to buy a house
These are all the things you can do to improve your credit scores to be able to buy a house on more advantageous terms.
Correct credit report errors
As mentioned earlier, check your credit report for any errors and correct them.
Avoid late payments
One of the biggest factors influencing your credit scores is paying your bills before they’re due. Late payments can have a detrimental effect on your credit ratings. If you’re having trouble making payments on time, consider setting up automatic payments.
Keep credit utilization low
Another important factor when improving a credit score is the percentage of your total available credit that you are using.
It is important to keep your credit usage below 30% of your total credit line to maintain a good credit score.
Sign up for karma credit or sesame credit
Credit Karma and Credit Sesame are two of the best companies to help you improve your credit history. Their services tell you exactly what you need to do to increase your scores and the service is free.
See a comparison of Credit Karma vs. Credit Sesame.
Your credit score is one of the factors lenders use to determine the interest rate you qualify for on a mortgage. It is certainly a factor that is under your control. If you put time and effort into it, it will get better.
If your credit score is below average, you may have to pay more interest over the life of your loan than someone with a better credit score.
To improve your credit score fast, you need to focus on reducing your debt, limiting your spending, and paying your bills on time.