When’s the last time you checked your FICO score? If it has been a while and you’re planning to purchase a home soon, you may want to look at your most recent credit report. That’s because improving your credit score by even a few mere points can have a serious impact on your mortgage rate and save you thousands of dollars in interest payments over the upcoming years. Let’s discover how credit and purchasing a house are related as you learn how credit works.
Why your credit is important while purchasing a home
It’s very important to understand how credit works and what you can do to improve your credit score. Your credit score determines both the percentage you’ll pay on a mortgage, and whether you can get a loan for a mortgage at all. Those with a credit score of 620 or less will have trouble getting a mortgage. That doesn’t mean however, that it’s impossible to do. Alternatively, if you have a score of 740 or greater, you’ll qualify for the best interest rates from lenders.
Usually the difference between two people with scores of 620 and 740 is one-and-a-half percentage points, which might not sound like that big of a deal, but considering that the median home in Durant, OK costs nearly $100,000, a 1.5% difference on mortgage interest can lead to thousands of dollars saved over a year.
So, what can you do to fix your credit?
If you’re someone with a 620-credit score (or even less) don’t worry! It’s never too late to improve your credit score. With the right effort and with enough time you can ensure that you receive a good interest rate for your mortgage. Start by checking your credit score. You can do this for free (every 12 months) by requesting your credit report from each of the three major consumer reporting companies (TransUnion®, Equifax®, and Experian®). Take time and review every single piece of information listed on your credit report and dispute anything that looks incorrect.
What do creditors look for?
Now that you have your credit report, it’s important to understand what lenders look for while deciding the rate you’ll receive. Creditors prefer people who make on-time payments every month. They also look at how much credit you have access to, versus what you’re currently using. Some red flags to creditors include accessing all your available credit, having lots of credit accounts that were recently established, and applying for new credit at a variety of places.
What are my next steps?
If you are interested in purchasing a home, but you want to improve your credit score first, then the best solution is to wait a year or two to fix your credit. Disputes take time to go through, it’s important to pay off anything that’s delinquent, and you need to establish history of paying on time. These steps take time, so don’t rush into purchasing a home before working on your credit today.
If you want to learn more about buying a new home in Durant, OK or have questions regarding your credit score, credit history, income guidelines, and monthly obligations, we will be glad to help you with your search and assist with getting your finances prepared to succeed. Give us a call or send me an email today to get started!