When thinking about buying a house people usually think about things like debt-to-income ratio, a down payment, their income, etc. But one of the things that could affect your home buying process more than anything else is your credit score. The reason your credit score is so important is it will determine how good your rate will be as well as the amount of mortgage insurance you’ll pay. Having a higher rate means a higher monthly payment. A person with a credit score in the upper 500’s will have a higher rate than someone that has a credit score in the lower 700’s which means a higher monthly payment. And it could be the difference of hundreds of dollars a month. On top of rate, you also have mortgage insurance to consider. Mortgage insurance is the payment given to lenders for taking on the risk of a mortgage with a low down payment. Your mortgage insurance is also determined by credit score and will be less for those with a better score. If you’re looking to buy a home soon, it’s important to get familiar with your credit score
as soon as possible. Do you have a good credit score (typically around 680 or better) or does it need some work? If you want to get it higher, here are a few tips to improving your score.
- Make your payments on time. Late payments can have a very negative effect on your score.
- Pay off debt. You don’t need to remove all your debt but the better debt-to-income ration you have, the better your score will be.
- Credit History. Having no credit history can almost be as bad as no credit. If you need some credit history, it might be time to think about getting a small loan or credit card that you can make payments on. This allows lenders to see a history of on-time payments and makes you less of a risk.
If you have more questions about how credit scores affect home loans, University Credit Union mortgage consultants are always available. They’ve helped many people improve their score so they could get into the perfect home.