Is your credit score preventing you from buying a property? You wouldn't be alone. Around 20% of people blamed their credit score for stopping them from being able to buy a house. Your credit score and credit history carries significant weight when it comes to the home buying process. By looking at your score and your previous credit behavior, lenders will determine how likely you are to repay what you borrow. Furthermore, if you do qualify for a loan, your credit score will affect the rate of interest you’ll have to pay.
Many Americans in the dark about credit scores
But despite the significance of good credit scores on buying real estate, many Americans admit to not knowing very much about it. Many say they understand that a good credit score is important but feel very confused about what it means. Furthermore, four in ten people don't even know their own credit score, according to a survey of around 1,000 Americans by Chase Slate Credit.
Get to grips with your credit score
But knowing your credit score and understanding how you can improve it are key to unlocking your next home. If you want to invest in real estate, or access better interest rates, then it’s time to finally get to grips with your credit history. So, to shed some light on credit scores for people looking to buy a property, here’s our quick guide.
What is a credit score and credit report?
A credit score is often referred to as a FICO score. It’s a three-digit number ranging from 300 to 850 that indicates the creditworthiness of a person and the likelihood of them repaying a loan. If you have a credit score of 850, a lender will have the impression that you will almost certainly pay off your debt to them within the agreed terms. However, a credit score of 300 suggests that you will most likely miss or be late with payments. Credit reports offer a detailed look at every loan and credit card you have ever taken out. Your credit report covers each account you have held and shows your payment history, credit limits, current balance, when the account was opened and if it’s been closed.
What credit score do you need for a mortgage?
There is no exact answer to this, as the credit score requirements for financing a real estate purchase can significantly vary across different lenders. However, in May 2016, the Federal Housing Administration required borrowers to on average have a score of over 600 to be eligible for a mortgage. It’s generally recommended that you aim to reach a credit score of at least 660 to make sure you are in a good position when applying for a loan.
A good credit score could be the key to your next home
Even if you discover that you have a bad credit score, it is possible to turn it around. By focusing on paying your bills on time and reducing your debt, you can soon transform your credit report and be closer to finally purchasing your dream home.
Sally Collins is a professional freelance writer with many years experience across many different areas. She made the move to freelancing from a stressful corporate job and loves the work-life balance it offers her. When not at work, Sally enjoys reading, hiking, spending time with her family and traveling as much as possible.