When you’re thinking about buying a home, one of the most important things to consider is your credit score. Your credit score will determine what interest rate you get on a mortgage loan and can influence whether or not you’re approved for a loan at all. The higher your credit score, the better terms and interest rates you’ll be eligible for. This guide explains what score you need, what goes into your scores, and what you can do to push your score a bit higher if necessary.
What Credit Score Do You Need to Buy a Home?
Your credit score is one of the most important factors in getting a mortgage loan. The higher your score, the lower your interest rate will be and the easier it will be to get approved for a loan. A good credit score to buy a home is typically over 700, but you may be able to get a loan with a score as low as 580 in some cases.
Why Does Your Credit Score Matter When You’re Buying a Home?
Your credit score is important because it gives lenders an idea of how likely you are to repay a loan. The higher your score, the more confident they’ll be that you’ll make payments on time and won’t default on the loan. This confidence allows them to offer lower interest rates and better terms.
What is a FICO Score?
A FICO score is one type of credit score that lenders look at when considering a loan. Your FICO score is calculated based on five factors: payment history, debt-to-credit utilization, age of credit history, credit mix, and new credit accounts.
How is Your Credit Score Calculated?
Your credit score is calculated based on five factors: payment history, debt-to-credit utilization, age of credit history, credit mix, and new credit accounts.
- Payment history (35 percent): This factor looks at your past payment behavior, including whether you’ve made payments on time, missed payments, or had any bankruptcies or foreclosures.
- Debt-to-credit utilization (30 percent): This factor looks at how much of your available credit you’re using. It’s important to keep this number low, ideally below 30 percent.
- Age of credit history (15 percent): This factor looks at the average age of your credit accounts. The longer your history, the better.
- Credit mix (10 percent): This factor looks at the different types of credit you have, including installment loans, revolving lines of credit, and credit cards.
- New credit accounts (10 percent): This factor looks at how many new credit accounts you’ve opened recently. It’s best to open new accounts only when necessary.
How to Check Your Own Credit Score
You can check your own credit score for free through a number of websites, including Credit Karma. Thanks to the Federal Trade Commission, you’re allowed to get one free copy of your credit report annually from each of the major reporting agencies; you can get these reports at AnnualCreditReport.com. Many credit card companies and banks offer you a monthly glimpse at your FICO score, as well.
3 Tips for Boosting Your Credit
Check out these three tips that can help you boost your credit score before you buy a home:
- Pay down high-interest debt
- Make payments on time
- Dispute errors immediately
Here’s a closer look at each. This isn’t financial advice; you should talk to a financial professional if you’re interested in building your credit score.
Tip #1 for Boosting Your Credit to Buy a Home in Boca Raton: Pay Down High-Interest Debt
If you’re carrying any high-interest debt, now is the time to pay it off. The lower your debt load, the better your credit score will be. Focus on paying off credit cards and other revolving lines of credit first; these have higher interest rates than installment loans do, so they can do more damage to your score.
Tip #2 for Boosting Your Credit to Buy a Home in Boca Raton: Make Payments on Time
One of the best ways to boost your credit score is to make all of your payments on time. This includes both debt payments and other types of bills, like utilities and rent. Set up automatic payments if possible, so you don’t have to worry about forgetting to make a payment.
Tip #3 for Boosting Your Credit to Buy a Home in Boca Raton: Dispute Errors Immediately
If you spot any errors on your credit report, dispute them immediately. This includes incorrect information about your payment history, credit utilization, or any other factor that could be dragging down your score.
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