Think you are ready to buy a home? Are you aware of the current credit score requirements in order to qualify for a home loan? Whether this is your first time buying a home or you are a seasoned home buyer, buying a home requires taking a look at your current credit status.
The following are a few tips on improving your credit score in order to get the best rate possible on a home loan. In the current market a buyer must have a credit score of at least a 650 in order to be considered for a home loan. However, at this level of status a buyer is still looking at a large down payment and a higher interest rate then someone with a 700-720 score, with the best rates being secured by scores of 750 and above.
How can you better your score?
The first thing you must do is pull your credit score from all three of the leading companies that track this type of information-Experian, TransUnion, and Equifax. Once you have received a report from each company then review them for accuracy, and dispute any incorrect information so that your score is not adversely affected.
The next step is Do Not apply for any credit for at least one year prior to financing a home. It is also important to abstain from applying for any type of credit after you have been approved for a home loan and until the closing. Mortgage companies generally pull credit when you apply for a loan and then re-pull your credit again later on.
Then, if for some reason your credit has dropped not only could your rate increase, but your down payment could too. In some instances you could lose your loan all together based on a credit score drop. Pulling credit can reduce your FICO score by up to 20 points and it can take about 6 months to bring that score back up.
Another tip to improving a credit score is to pay all bills on time, for at least a year, to show a lengthy history of on time payments. It is also important to pay down high balances on credit cards so they are around 20% (i.e. credit available to you is $10,000, you should owe no more than $2,000). A common mistake that people often make is closing all their credit cards down thinking this will increase their score. However, this adversely affects the score by decreasing the amount of credit that is available (i.e. you have two cards each with $5,000 available, you close one with a zero balance and you owe the other $2,000, your percentage is now at 40%). The zero balances can actually help your credit score!
Most importantly do your research and find ways to pay down your debt in order to increase your score and save you money in the long run.