Your Credit Score: The Number That Can Help Open the Door to Homeownership
Pro Tip: The length of your credit history may play a role in your credit score. An older account that has been managed responsibly could potentially help your overall credit profile.
Understanding Your Credit Score: A Few Simple Steps Before Buying a Home
Your credit score is more than just a number — it can affect how much home you can afford, your loan options, and potentially the interest rate you receive. If buying a home is somewhere on your radar, understanding your credit is a great place to start. And no, you don't need to become a credit expert overnight. Let’s keep it simple.
1. Pay Your Bills on Time: This is one of the biggest pieces of the credit-score puzzle. Late payments on credit cards, auto loans, student loans, and other debts can hurt your credit score. Building a history of paying bills on time can help strengthen your overall credit profile. Simple rule: If a payment is due, make paying it on time a priority. Setting up automatic payments or reminders can help.
2. Watch Those Credit Card Balances Having a $10,000 credit limit does not mean you want to carry a $9,500 balance. Lenders pay attention to how much of your available revolving credit you are using. This is often called your credit utilization ratio. Generally, lower balances compared with your available credit can be better for your credit profile. Think of your credit card like a buffet: just because everything is available doesn't mean you need to put everything on your plate!
3. Don't Open New Credit Just Because You Can That new furniture promotion may sound tempting: “Buy today and don't pay until next year!” But if you're preparing to purchase a home, opening several new accounts in a short period can affect your credit score and your mortgage qualification. Before financing a car, furniture, appliances, or another major purchase, talk with your mortgage professional. That new monthly payment could change how much home you qualify for.
4. Don't Automatically Close Your Old Credit Cards Have an older credit card you rarely use? Before closing it, consider talking with a mortgage or credit professional. The length of your credit history may play a role in your credit score. An older account that has been managed responsibly could potentially help your overall credit profile. Sometimes doing nothing is better than trying to “fix” everything at once.
5. Check Your Credit Report Don't wait until you're under contract on a house to discover something unexpected. Reviewing your credit report gives you an opportunity to look for: Accounts you don't recognize, Incorrect balances, Late payments reported incorrectly, Duplicate Accounts, Possible identity theft, Other inaccurate information
If something looks wrong, investigate it early................To Be Continued
Frequently asked questions
- Do I need a perfect credit score to buy a house?
- Nope! You do not need a superhero credit score wearing a cape. Different loan programs have different requirements, so even if your score is not perfect, you may still have options. Best move: Talk with a lender before assuming you cannot qualify.
- Will maxing out my credit card hurt my homebuying plans?
- It definitely may. If your credit card looks like it has been on a shopping vacation, high balances can affect your credit score and your monthly debt. Tip: Try to keep balances manageable and avoid large purchases before buying a home.
- Should I open a new credit card to get 20% off my new couch?
- That couch discount may not feel so exciting if the new account affects your mortgage qualification. Before opening new credit, financing furniture, or buying a new car, talk with your lender first. The couch can wait. Your home loan deserves VIP treatment.
- Ready to Find Out Where You Stand?
- Thinking about buying a home in the next 3, 6, or 12 months? Call or text me at 774-297-8312 for a simple Homebuyer Game Plan. We'll look at your credit, income, debts, down payment, and loan options so you know what your next move should be.
This article is for informational purposes and is not an offer to lend or a commitment to make a loan. All loans subject to underwriting approval, program guidelines, and appraisal. Equal Housing Opportunity.