What is a Credit Score?

Your credit score is a little three-digit number between 300-850 that depicts a consumer's creditworthiness, and that has a BIG impact on your home-buying process. The higher the score, the better a borrower looks to potential lenders. Our real estate agents know buying a home is an exciting experience. Whether it's your first time purchasing a property or if you're moving into a new space that will cater to your changing lifestyle, we want to make sure that your experience is an easy one.

How Credit Scores Impact Buying a Home

With years of experience helping clients buy and sell homes, we understand real estate transactions inside and out. Our customers often ask questions regarding how a credit score impacts purchasing a home. To provide you the best advice, we've answered some of the most common questions about credit scores so you can head into your home search with confidence.

Does my credit score matter?

Yes! Your credit score is an essential aspect of your financial life. Although it is an important consideration in a real estate transaction, your credit score can also impact other things like buying a car or taking out a loan. You can also leverage great scores into great deals — on credit cards, insurance premiums, apartments and cell phone plans. Bad scores can hammer you into missing out or paying more. According to Nerd Wallet, a 15-year home equity loan of $50,000 would cost a low scorer $22,500 more than someone with high scores.

How is my credit score calculated?

A credit score is composed of many elements, including your credit payment history, your debt-to-credit utilization, your length of credit history, your credit mix, and your new credit accounts.

What credit score do I need to buy a home?

Technically, you can buy a home with any credit score. However, securing financing gets increasingly more difficult the lower your credit score is. Credit scores range from 300 to 850, with anything above 760 considered exceptional and anything below 650 considered less than favorable. For example, a credit score of 700 is good, and you may have an easier time qualifying for a loan than someone with a credit score of 400, which is considered unfavorable in the eyes of lenders. Similarly, those with an 800 credit score should have no trouble getting a mortgage approved by a financial lender.

How can I raise my credit score?

You can always raise your credit score no matter how low it is. Although it may take discipline and time, there's no reason why any individual can't get their credit score to a level which a mortgage lender will approve of. First, you should check your credit score and report to see where you stand. If you notice an error on the report, dispute it so it can be removed. Next, you'll want to gather all of your debts and plan a way to pay them down. Many people choose to pay off smaller debts first to show better management of debt-to-credit utilization. Moving forward, you'll want to ensure that you pay every bill on time so you won't chance missing a payment and dropping your score. Some individuals with limited or very low credit scores may want to consider building new credit responsibly by opening a new credit account, getting a new credit card or taking out a secured loan. Using these resources wisely can help boost your score.

Should I improve my credit score before I begin house hunting?

While it's not absolutely necessary to raise your score before you begin your search, we do recommend that you try to boost it if possible. When you seek out a loan or mortgage, you want to have the highest score and best credit report possible so you can secure funding quickly without trouble.

To learn more about how your credit score impacts the home buying process, contact us today!