Home Buyers Want High Credit Scores
The real estate market is more competitive than ever. Home values are increasing and the demand from home buyers is through the roof. Inflation has steadily been affecting the cost of home prices, making it harder for people to buy a home. There is also a limited supply which is causing demand to go through the roof. Unfortunately, not everyone has been able to take advantage of today’s mortgage rate climate. Lenders have been incredibly selective during this favorable mortgage rate environment. While your credit score is not the only thing that determines your ability to finance a new home purchase, it is important. The team at Streamline Realty wants to help you understand why good credit can help home buyers.
The Basics of a Credit Score
Your credit score is a number between 300 and 850 that assesses a person’s credit worthiness. There are three credit bureaus that assess your creditworthiness. These are Experian, Transunion, and Equifax. An excellent credit score is one that is in the 781 to 850 range. A very poor score is one that is between 300 and 499. Everything in between varies because credit scores are calculated through many factors. The first common factor is your debt to income ratio. The debt to income ratio is the comparison between your outstanding debt and the amount of money that you receive. The more debt you have, the lower your credit score will be. These debts can be from outstanding loans, credit cards, car leases, or other sources of debt.
Another part of your credit score is the history you have with lenders. Every time you ask for a loan, credit card, financing application, or even something like a mortgage. The more you apply for different loans, the more your history racks up. Another part of your history is your payment history. If you are late to pay back a loan, it will get reported to all three credit bureaus.
Tips to Improve Your Credit Score and Improve Your Chances of Buying a House
Having an excellent credit score is important for increasing your chances of qualifying for a mortgage. Here are some ways that you can improve your credit score so that you can get your dream house today:
Pay your bills. Payment history has a large impact on your credit score, so it is important to always pay on time. Charging all of your monthly bills to a credit card could help in case you forget to pay your bills.
Keep your credit utilization low. Credit utilization is calculated through the percentage of debt you have. For example, owning one credit card and using all of the available funds on the card would put your credit utilization at 100%. This is not a great spot to be in because it tells lenders that you are very reliant on borrowing money. As a rule of thumb, you should keep your credit utilization ratio to around 30%.
Limit “Hard Inquiries”. Hard inquiries occur when you apply for credit. This could be a credit card or a loan. The process requires the lenders to look at your credit and determine if you are worthy of the loan. If this ends up on your credit then it is a hard inquiry. Limiting these can help your credit. This is especially helpful when you are about to apply for a home.
Consolidate your debts. If your debt is spiraling out of control, debt consolidation may be a good option for you. This entails taking out one large loan to pay off all of your other debt. This could be advantageous if you get a lower monthly payment or lower interest on the loan.
Final Thoughts
Owning a home is a fundamental component of the American dream. It gives you a place to make long-term memories with those you love. It is also one of the best ways to build wealth for you and future generations. One of the best ways of improving your chances of buying a home is enhancing your credit.
If you would like to buy a house but think your credit score might not be good enough, you should contact us! At Streamline Realty, we are here to help you with every step of your credit enhancement journey. We can get you in touch with credit enhancement professionals who help identify errors on yur credit report or help you make a plan to improve your FICO score. The bottom line is that your credit score should not get in the way of your desire to be a homeowner. With a little knowledge, support, and planning, you can put yourself in a position so that the home of your dreams will soon be your reality.
