As the new year approaches, the idea of buying a home might be on your mind. It’s an exciting goal to set. It’s never too early to start laying the groundwork. One crucial step to prepare for homeownership is building a solid credit score.
Lenders review your credit to assess your ability to make payments on time, pay back debts, and more. It’s also a factor that helps determine your mortgage rate.
“When it comes to mortgages, a higher credit score can save you thousands of dollars in the long run. This is because your credit score directly impacts your mortgage rate, which determines the amount of interest you’ll pay over the life of the loan.” (article from CNBC)
This means your credit score may feel even more important to your homebuying plans right now. Mortgage rates are a key factor in affordability, especially today.
Working with a trusted lender is the best way to get more information on how your credit score could facor into your home loan and mortgage rate.
“While many lenders use credit scores like FICO Scores to help them make lending decisions, each lender has its own strategy. There is no single “cutoff score” used by all lenders. There are many additional factors that lenders may use to determine your actual interest rates.” (FICO)
If you’re looking for ways to improve your score, Experian highlights some things you may want to focus on:
- Your Payment History: Late payments can have a negative impact by dropping your score. Focus on making payments on time and paying any existing late charges quickly.
- Your Debt Amount (relative to your credit limits): When it comes to your available credit amount, the less you are using, the better. Focus on keeping this number as low as possible.
- Credit Applications: If you are looking to buy something, don’t apply for additional credit. When you apply for new credit, it could result in a hard inquiry on your credit that drops your score.