Back HomeHow your credit score influences your ability to buy a home
One of the most important requirements for buying a home is a good credit score. With a good credit score, you are one step closer to getting a mortgage and eventually owning your dream home. Read more about credit scores, their importance, and how to boost yours.
What is a credit score?
A credit score is a three-digit number that shows the probability of paying your loan back on time. A fair credit score ranges from 580 to around 669. A good credit score is between 630 to 799 while an excellent credit score is 800 and above. This credit scoring model is based on the FICO (Fair Isaac Corporation) score, which is used to assess risk and creditworthiness.
When you apply for a mortgage, the lender looks at your credit score to assess you as a borrower. The higher your score, the better the interest rates. All home loans have different credit score requirements as well. Conventional mortgages, for instance, require a minimum credit score of 620. Government-backed loans like VA loans and FHA loans typically require a credit score of at least 580.
How is my credit score determined?
There are five factors that determine your credit score:
- Your history of payments – A crucial factor in your credit score, your payment history is the record of all your payments. Aside from the payments you’ve made on time, your payment history also includes when you’ve missed or made a late payment.
- The length of your credit history – Your credit score also takes into account how long you have been using credit. And to get a credit score, your credit account needs to be open for at least 6 months. Seven years is considered as a good amount of time because lenders can see that you’ve had enough credit experience. However, this may vary depending on your debt and payment history.
- The total amount of debt you owe – Having too much debt may also bring your credit score down. That’s why it’s essential to manage your debt well and pay it off as soon as possible.
- The type of credit – Other than credit cards, your credit score is also determined by your portfolio of credit accounts like car loans, student loans, and other credit-related products.
- If you have applied for or gotten new credit – Opening too many new credit accounts or having too many hard inquiries can hurt your credit score as it shows risk.
Tips for boosting your credit score
If your credit score is lower than expected, don’t worry! There are several ways to improve it. Just remember that raising your credit score doesn’t happen overnight. Everyone has a different credit journey and some may take longer than others.
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Keep track of bills and payments
It’s easy to lose track of what you’ve been spending on and the bills that you need to pay. Organize all your bills by keeping them in one place. For paper bills, have a designated spot, whether it’s a folder or in a specific drawer. As for the online bills, create folders and corresponding subfolders (if needed) and move your online bills there.
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Make sure all your bills are paid on time
One of the biggest factors that affects your credit score is your payment history and whether or not your bills have been paid on time. Have a set time and place for paying your bills each month. To ensure that your payments remain consistent, make your payments automatic. You can set your credit card on autopay by calling your credit card issuer or accessing your account online.
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Double-check your credit report
It’s always a good idea to check your credit report every now and then so that you can report any inaccuracies. If you do find an error, you can file and dispute it. To get your credit report, you may request it from the major credit reporting agencies in the nation: Equifax, Experian, and Transunion.
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Increase your credit limit
A higher credit limit can lower your credit utilization, let you earn more rewards, and make it easier for you to get loans.You can increase your credit limit by opening a new credit card or requesting an increase on your current one. However, you should only increase your credit limit if you are confident in effectively managing your expenses and debt.
Ready to buy a home in Texas? Work with a team of expert real estate agents like Berkshire Hathaway HomeServices. The team will be with you every step of the way to help you prepare for one of the biggest financial transactions you will make. Reach out to the team by calling 979.694.8844 or sending a message.
