It can be tough to buy a home, no matter what type of market you are dealing with. Preparation is essential, and this means getting your credit score as high as possible before you start searching. If you have no credit, or your credit score is low, it is important to work on raising your credit score in order to secure a mortgage. Home buying involves looking over your credit history, reviewing credit reports, and establishing what you can afford for a mortgage payment.
Why Credit Scores Matter
Houses are expensive, and you need to show that you are going to be able to pay back your loan. A strong FICO score shows that you are financially responsible, and you have a track record of paying back lenders. The higher your credit score is, the easier it is to obtain a mortgage. A good credit score will result in more mortgage options, a lower down payment, and a better interest rate. Your credit score is a direct reflection of your past history of managing your money, and shows that you are a responsible borrower when your credit score is high.
How Your Credit Score is Calculated
Your credit score is an overall picture of how you handle your financial obligations to creditors. Your total credit limits are looked at, and how close your credit balances are to the limits is factored in. Your payment history is calculated as a percentage of on-time payments to your lenders. Any negative marks on your credit history, such as collections or tax liens will lower your credit score. How long you have had open credit, the number of accounts you have open, and the number of applications you have made to secure credit are all factored in to your overall score. Over time, late payments and collections will drop off of your credit history, but this will take years.
Improving Your Credit Score
It is never too early to start working on your credit score. One of the quickest ways to improve your credit score is to pay off credit card balances if you have them. If you don’t have any credit, start by opening up a credit card. Secured credit cards allow you to put down a deposit, which then opens up a credit card in the amount of your deposit. Pay attention to your card balances, and keep your balances below 30% of the total credit available to you. If you can pay off your credit cards every month, this will improve your credit score. Avoid overspending, as you are going to be paying back interest that could be money you save toward a down payment for house.
Monitor Your Credit Score
Know what your credit score is, and monitor your score throughout the month. According to a survey by NerdWallet, only 1/4 of Americans check their credit score on a monthly basis, and almost one in eight have never checked their credit score. If you have open credit, request a higher credit line. Always pay your credit cards on time and settle old debt if you can. If there are any errors on your credit report, dispute the errors to fix the problems.
Good credit doesn’t just happen. Getting your credit score up takes time, effort, and the ability to make good choices when it comes to your finances. The more proactive you are, the easier it will be to secure a mortgage. When you are serious about buying a home, find out how Mid America Mortgage can help. With the right lender in place, you can purchase the home of your dreams.