Is Your Buying Power Affected by Your Credit Score?
When you apply for a home loan, several factors are evaluated. Lenders look at such things as your income, current financial obligations, the percentage of your Down Payment† This score helps potential lenders to determine if you meet their specific lending criteria, and can influence the type and amount of a loan you qualify for, as well as the interest rate.
As far as your lender is concerned, the higher your credit score, the better. A history of timely payments and low credit usage will result in a high credit score. If you’re looking for a conventional Mortgage, you’ll likely need a credit score of 620 or higher to qualify (the range is 300 to 850). A lower credit score doesn’t necessarily disqualify you from buying a home, however the mortgage may have a higher interest rate and a higher mortgage insurance premium. This means you will have a higher Monthly Payment and will pay more in total through the term of the mortgage.
There’s no quick way to boost a credit score; building a good credit history takes time. That said, there are things you can do to make small improvements ahead of time and make sure things run smoothly when you apply for a home loan:
Don’t open new lines of credit (like an auto or furniture loan) before applying for a mortgage.
Pay down any credit cards or loans if you can, but don’t close the accounts. This improves your debt-to-credit ratio and shows you are a reliable borrower.
Check your credit accounts to be sure nothing is past due. Also make sure there are no outstanding rent, utility or medical bills in your name.
If you’ve missed a payment, pay it as soon as possible and contact the creditor to ask if they can remove the late payment report from your account. If you’ve been a reliable borrower and explain your situation, they’ll often make the adjustment.
Maintain a good Debt-to-Income Ratio by keeping your credit card balances below 25% of the available credit.
Enroll in automatic payments for everything you can to help avoid late payments.