How does the Credit Score affect You?
We all know that your credit score affects your mortgage rates. But your credit history can also affect the amount of the deposit and the price you pay for mortgage insurance. It is not impossible to buy a home with a bad credit score; and it's much more expensive.
Before looking at home, it is a good idea to check your credit score and obtain your credit reports from the major credit agencies.
How does the credit score affect home purchases?
A low credit score can reduce the likelihood that you will qualify for the most affordable rates and even lead to a mortgage rejection.
Lenders use your credit report to obtain information on how well you have paid your debts in the past. When applying for a mortgage, you'll need to provide payrolls, W20’s, and bank statements to show how much you earn and what your monthly budget would look like. This shows lenders your current financial situation, but to predict how you will behave in the future, they will also look at your credit history.
Your credit history can also affect the interest rate on a mortgage in that the types of mortgages available to you will be affected by the responsibility with which you borrowed in the past. Special introductory rates or other attractive mortgage offers are only available to people with a specific credit history.
What is a good credit rating to buy a home?
Many lenders use the FICO (Fair Isaac Corp.) model to measure creditworthiness, which rates consumers in the range of 300 to 850 points, with a higher score indicating less risk to the lender. A score of 800 or higher is considered exceptional; 740 to 799 is very good; 670 to 739 is good; 580 to 669 correctly; and 579 or less is bad.
How to improve your credit rating?
Many lenders use the FICO (Fair Isaac Corp.) model to measure creditworthiness, which rates consumers in the range of 300 to 850 points, with a higher score indicating less risk to the lender. A score of 800 or higher is considered exceptional; 740 to 799 is very good; 670 to 739 is good; 580 to 669 correctly; and 579 or less is bad.
Use fewer loans
How much of your credit card are you currently using? This percentage is called the level of use of the loan and, if it exceeds 30%, you risk damaging your account. In fact, studies show that people with the highest credit scores regularly use less than 10% of their affordable credit.
Leave your old cards open
A large loan takes time to build. Potential lenders want to see that you have a long history of debt. The credit cards you have been using for years can provide some of this evidence.
Pay each bill on time
More than a third of your credit rating depends on how you pay the bills that are reported to credit agencies. In fact, if you pay your monthly credit card or late payments, even multiple times, your account may lose valuable points. Therefore, the best thing you can do to strengthen your credit rating is to make sure you have paid at least the minimum amount.
Ask for a favor
There are times when you make a small mistake and cannot pay your bills on time. If you have a good payment history, you can ask the lender to help you and give you a late payment waiver. It is best if you spot the mistake in advance and contact them immediately.