When trying to qualify for a mortgage one of the biggest factors in determining that is your credit score. So if you have a higher score the less of a risk you will be. However, it is possible to buy a house with a credit score that isn’t stellar.
What is a credit score?
A credit score is a score that shows a lender how likely you are to make payments on time. So the higher your score the more likely the loan will be paid back. There are 5 aspects that impact your score and each of them vary in importance. Your payment history accounts for 35% of your score, debt-to-credit utilization is 30%, the length of credit history is 15%, credit mix is 15%, and a new credit is 10%. The best credit score you can have is 850, however, if you are in the 740 range you are in the zone for the best mortgage rates. At a minimum, you should have a score of at least 660 to be able to qualify for the loan and get a decent mortgage rate.
How to boost your score
In order to get your credit score in tip top shape, you will need to address the issues that will cause your score to drop.
Pay all your bills on time. This is one of the easiest ways to boost your score. This can be tough for some people especially when you aren’t used to paying your bills on time. However, you need to come up with a budget each month that works for you and your family.
Pay down your credit card debt. Since you debt-to-credit utilization accounts for 30% of your credit score a good way to help is to pay down your debts. Make sure that charges to your credit cards don’t exceed 1/3 of your total available credit limit. You could also raise your score by increasing your credit line on your credit card. This would reduce that ratio.
