Know your credit score is essential if you plan on buying a home in the near future. Credit scores show lenders your history when it comes to borrowing money and has a direct impact on your interest rate, borrowing terms, and the likelihood of approval during the mortgage process. This article discusses the top reasons that credit scores are important and our top tips on improving your credit score before buying a home.
Why your credit score is important
A credit score is a measure of a borrower’s creditworthiness and assesses their ability to repay their debt obligations. Lenders look at your credit score as a way to calculate the risk associated with approving you for a loan. This means that low credit scores indicate more risk when lending to this borrower.
On the flip side, a good credit score shows lenders that you have a history of responsibly managing your debt and repaying your debt obligations. Borrowers with high credit scores typically get better interest rates and more favorable repayment terms on their mortgages.
What is a good credit score?
Credit scores range from 300 to 850, with the best interest rates and financing terms reserved for those with credit scores above 740. A score in this range allows borrowers to qualify for most loans and credit cards with reasonable interest rates. Credit scores ranging from 670 to 739 are considered “good” and most borrowers will be approved for loans with credit scores in this range.
Credit scores ranging from 580 to 669 are “fair” and may still qualify you for some loans and credit cards, but you shouldn’t expect to receive favorable financing terms. Credit scores below 580 are considered “bad” and it will be difficult to qualify for many loans or credit cards in this range.
Credit scores during the homebuying process
Shopping for a new home is an exciting process. However, it’s important to know what to do when it comes to applying for new credit or debt obligations while you’re in the homebuying process.
Before getting the pre-approval process started, the first thing you should know is to not apply for any new credit since this can lower your credit score and cause the deal to fall through. Without taking on any new debt, your credit score should remain the same and you’ll be able to qualify for the best interest rate possible.
Paying down your debt before buying a home can also help you improve your debt-to-income ratio and boost your credit score.
Improving your credit
Those who want to qualify for the best interest rates should work on improving their credit score before buying a home. One of the best ways to do this is to continue to make on-time payments for all your debt obligations. It’s also best to review your credit report so you know what lenders look at when running your credit with a hard inquiry.
Are you looking to buy a home in Massapequa this year? The Kim Holland Homes Team is the leading real estate team in the Massapequa area. Give us a call at 516-236-6303 and check out our blog for more helpful resources on how to get the homebuying process started today.