Buying a home is an exciting step for many people. However, your credit score can make a significant impact on your ability to get a mortgage loan.
What Should My Credit Score Be to Buy a House?
A credit score can range from 300 to 850. A high credit score is an indicator to lenders that you are dependable and will make timely payments towards your loan. On the opposite spectrum, a low credit score suggests that you have a history of not paying back your loan.
This is how credit scores are ranked:
- Poor: 300-649
- Average: 650-679
- Good: 680-699
- Excellent: 700-850
While each lender will vary on what kind of credit score they prefer to approve a mortgage loan, a general rule of thumb is a minimum range of 640 to 680. However, that doesn’t mean you will receive a loan with good interest rates or other terms.
What Are The Benefits of a Higher Credit Score?
Even if you are approved for a mortgage loan, it may not be a desirable loan. Lenders will often give low credit score holders a higher interest rate or a lower loan amount.
Having bad or mediocre credit can limit your ability to buy the house of your dreams. You may want to consider taking steps to increase your credit score to receive bigger mortgage loans and lower interest rates.
What Determines My Credit Score?
Your credit score is determined by a mix of factors. Analyzing your credit reports can help you determine which areas you need to improve to get better mortgage loans.
Let’s review credit score factors and their weight in determining your score:
- Payment History (35%): Your payment history demonstrates how often you make or miss payments.
- Current Loan Debt (30%): How much debt do you currently owe?
- Length of Credit History (15%): A longer credit history shows your credit habits over the years.
- Account Diversification (10%): Do you have credit cards or installment loans? Lenders like diversified account types.
- Recent Credit Activity (10%): If you are opening a lot of loans suddenly, then it could lower your score.
How Do I Fix My Credit?
There is rarely a quick fix to increasing your credit score. It often takes some work and time, but the efforts pay off in the long run when you get approved for a competitive mortgage loan.
Here are some steps you can take to improve your credit score:
- Review your credit report and ensure it’s accurate
- Make payments on time
- Pay off your high-interest loans
- Don’t accumulate unnecessary debt
- Work with a consumer credit counseling agency
How Can Improve Credit Help You?
If you need to take care of credit issues to secure a mortgage loan, credit counseling can help you achieve your dream of becoming a homeowner.
Credit counseling will give you a personalized plan to improve your credit score. It starts by reviewing your current financial situation, evaluating your budget, and possibly a debt management plan. Your credit score will increase month by month and put you in a better position to be approved for a competitive mortgage loan.
At Improve Credit, our team is dedicated to helping you reach your financial goals. Get in touch with us for a free analysis.