By: Mark H Stowers
How To Improve Your Credit Score To Buy a House
You want to buy a house – it’s the American Dream. But what if you could achieve that dream more easily and pay less for it overall? You have that ability through your credit score. The higher your credit score, the quicker you get a pre-approval and a more attractive interest rate. In other words, you end up savings thousands and thousands of dollars just by increasing your credit score.
What Should Your Credit Score To Buy a House?
A credit score is a number that rates credit risk. It helps creditors determine whether to give credit, decide the terms they offer or the interest rate. No matter your credit score, there are ways to improve it just by learning how to fix a few simple things. Linus Thalman of Summit Funding has been doing just that for his clients. As a loan originator for the past 17 years, he’s learned how to help those seeking a mortgage, improve their credit score.
“A good credit score gets you qualified to buy a house and it helps you get a better interest rate,” Thalman said. “Also, if you put less than 20 percent down, it affects your PMI rate (private mortgage insurance.) Overall, your credit score is going to affect your payment.”
According to Thalman, there is a number considered to be the gold standard in getting the best rates for mortgages.
“If you have a 740 or over, you qualify for the best interest rates that Fannie Mae and Freddie Mac offer,” he said.
The credit score is the number one factor in determining rates. For every 20-point dip below 740, rates start to increase.
How to Get Your Credit Score
Checking the three main credit bureaus – Equifax, Experian and TransUnion – and getting your credit report is the first step. At AnnualCreditReport.com, you can request a free copy of your credit report from each bureau. There are also services such as CreditKarma.com where you can look at your credit score through a free account.
Thalman notes that these services will give you a good look at your credit report and credit score but the only way to get a true score is to have your credit “pulled” by a lender. But this creates what is called a “hard inquiry” and too many of those will negatively affect your credit score.
How To Improve Your Credit Score
Some lenders will write a mortgage based on the initial credit score. But Thalman looks for ways to help his clients improve their score in order to save money.
“It what I do for all of my clients. One of the fastest ways to improve your score is to pay down revolving debt or otherwise known as credit card debt,” Thalman said. “The balance to limit ratio (credit utilization) plays a major role in credit scoring.”
He does note there are some easy ways to increase your credit score quickly.
“Another trick is if there is a lack of credit, get a secured credit card,” Thalman said.
A secured credit card is one where you send in a certain amount and establishes the limit on the card. But anything charged has to be paid separately, not with the deposit. Another way to establish credit quickly is to become an “authorized user” on someone else’s account.
“See if you can jump on mom’s credit card. She’s had it for 17 years and automatically you get all of the credit for that,” he said. “Installment loans are typically the best. That is where you pay a fixed amount each month. You want to have a good, diverse portfolio of credit.”
Other ways to help increase or improve your credit score is by fixing errors or getting older negative items deleted from your credit report. But these can take time as you have to contact each bureau and submit a dispute. If you know you’re going to be looking to buy a home, get your credit report and credit score now and start cleaning it up to improve your score. The main drawback though is you can’t have an open dispute if you want to apply for a mortgage.
Your credit score is key in being able to buy a house and get a mortgage with a great interest rate. Check yours today and turn your dream into a reality.