How Does Your Credit Score Impact Your Purchasing Power When Shopping For A Home?
If you’re thinking about buying a home, then you probably already know your credit score is a critical piece of the puzzle when it comes to qualifying for a home loan. Lenders review your credit to assess your ability to make payments on time, to pay back debts.. It’s also a factor that helps determine your mortgage rate.
An article from Bankrate explains: “Your credit score is one of the most important factors lenders consider when you apply for a mortgage. Not just to qualify for the loan itself, but for the conditions: Typically, the higher your score, the lower the interest rates and better terms you’ll qualify for.”
Since mortgage rates are playing a big role in today’s purchasing power, your credit score is more important than ever to the home-buying process. According to the Federal Reserve Bank of New York, the median credit score in the U.S. for those taking out a mortgage is around 765. But, that doesn’t mean your credit score has to be perfect to buy a house.
Experts recommend you aim to get your credit score in the “Good” range, which is 670-739, to qualify for a mortgage, but higher scores in the “Very Good” range, those from 740 to 799, will help you qualify for lower rates. But even with these ranges, it’s important to keep in mind that every lender has their own strategies for making lending decisions and there is no universal “cutoff score” that all lenders use.
If you’re looking for ways to improve your score, Experian highlights some things you may want to focus on including your payment history, your debt amount, and credit applications. Late payments can have a significant impact on your credit score, so you should focus on making payments on time and paying off any late charges as quickly as possible. When it comes to your credit limits, the less you’re using, the better. If you have a credit card with a $10,000 limit, it’s best not to use $9,999 of it. And if you’re looking to purchase, don’t apply for more or new credit, which could result in a hard inquiry on your credit which also drops your score.
Bottom line, with affordability challenges in today’s market, you should keep an eye on your credit score and make it a priority to get your score up to help secure a better mortgage rate. It’s always a good idea to chat with a lender early on in the process so you have a better understanding of your credit and what you can qualify for. Until next time, rock on rockstars.