There are many things that affect a home buyer's ability to get a mortgage, and one of those things is a credit score. Before trying to get a mortgage, it's helpful for a home buyer to find out what their credit score is and what could be done to improve their credit score and boost their chances of getting a mortgage. If you're thinking about purchasing a home soon and will need to get a mortgage, here's what you need to know.
What is Credit Score? How is it Calculated?
A credit score is a score that measures a person's creditworthiness. There are many factors that affect credit score, including the number of open accounts that a person has, how reliably that person pays their bills, the amount of debt in each account, the number of recently opened accounts, the type of debt owed and the length of the person's credit history.
Credit scores can fall anywhere between 300 and 850, with 850 being perfect and 300 being very poor. Generally, a good credit score is considered to be between 700 and 749. Anything above 750 is considered excellent. The amount owed and the person's history of paying back debts are the two most important factors that are taken into account when deciding credit score.
How Can You Find Out Your Credit Score If You Want to Buy a Home?
There are three credit reporting agencies: TransUnion, Experian and Equifax. Home buyers can request a free credit report from any one of these credit reporting agencies. Home buyers can also request a free credit report from annualcreditreport.com. For more information about how to check a credit report, take a look at the FTC's website, Get My Free Credit Report.
What's the Minimum Credit Score to Buy a House?
Different loans have different credit score requirements. Buyers who have a lower than ideal credit score are often able to get a mortgage, but may need to pay a higher interest rate. In general, home buyers with a credit score of about 660 or higher should be able to get a mortgage. Some federally backed mortgages will still go through even if the home buyer has a much lower credit score.
What Can You Do if Your Credit Score is Low?
Many Franklin TN home buyers with low credit scores are still able to get a mortgage, if they're willing to pay a higher interest rate and make a higher down payment. FHA will approve loans for home buyers who have credit scores as low as 500, however, home buyers with credit scores below 580 must make a down payment of at least 10%. These home buyers are also likely to pay higher interest rates.
Home buyers who don't want to pay a higher interest rate and who don't want to make a larger down payment can instead do what they can to improve their credit score. Improving credit score takes a lot of time. Some small things home buyers can do to improve their credit includes:
- Request a copy of their credit report and report any errors to the credit report agency.
- Make all payments on time.
- Communicate with credit card companies when having financial trouble.
- Pay down balances on credit cards to show more open credit.
- Only try to open new accounts when it's absolutely necessary.
- Do not close accounts once they're fully paid off.
Homeowners who want to improve their credit can also see a credit counselor to find out what else they can do.
Contact a Mortgage Lender to Get Started
If you want to buy a home and you're wondering how your credit score will affect your ability to get a mortgage, contact a reputable mortgage lender. A good lender will help you determine what your credit score is, what kind of mortgage you're able to get with your current credit score and what you can do to improve your credit score.
If you're working on getting a mortgage and you believe your chances of getting a mortgage are low, work with a real estate agent. Your real estate agent can show you a variety of homes that may fit your needs and pocketbook.