Thomas Beauchemin's Blog
Many homebuyers face their credit score just before they’re ready to purchase. Your credit score is an important factor when trying to get funding for your new home, and it’s always a good practice to know where you stand.
Here are a few tips and tidbits to help you get your credit score in top shape before buying a home.
Why Do We Have Credit Scores?
Credit scores are numbers that show how likely a person is to repay a loan on time, or their creditworthiness. Lenders examine your score to assess how risky a person may be to lend to. They’re used to lessen the potential risk of borrower default. If your score is good, you’re more likely to get the loans and lower interest rates you need. However, you may have to go elsewhere for funding if your score is lower than the required minimum score for the loan.
What’s A Good Score?
Credit scores range from 300 to 850, with 850 being the highest score you can get. A credit score of 700 to 799 is “good.” A credit score above 800 to 850 is “excellent.”
If your credit score isn’t perfect, there are ways to correct it before you look for your loan.
Pay Off Outstanding Debt
Outstanding debt can make it harder for you to secure funding. If you have accounts in collections, high-balance credit cards, medical bills or any other outstanding debt, pay off as much as you can. By paying off these outstanding debts, your score rises as your debt-to-income ratio shrinks.
Rebuild Your Credit
You’ll need to keep up any accounts that you have with excellent payment history. Maintain those on-time payments to keep your creditworthiness in shape. If you have accounts with late payments, you can work to get the accounts to “current” status.
If you don’t have any accounts that can help you build credit, you’ll need to get and use at least one. Apply for a credit card and charge a small amount each month. Pay the amount off monthly. This will help you build or repair your credit for an excellent credit history.
Look At Your Whole Financial Picture
Aside from your credit score, you’ll need to look at your bigger financial picture. You need sufficient income, decent credit and an airtight budget to buy a home and provide a down payment along with money to pay closing costs.
Once you dive into your credit score and how to improve it, you’ll be on your way to better financial health and keys to your new home.