Your credit score is something you’re either extremely proud of or absolutely worried about. It’s either something you rarely have to think about or something that’s always on your mind. It either helps you get the things you want most in life or is the thing that’s standing in your way.
Recent studies suggest that nearly 67% of Americans have ‘good credit’ (670 or higher) and nearly 22% of Americans have ‘exceptional credit’ (800 or higher). That means while a majority of people have good to exceptional credit, there are still millions of Americans that don’t.
For anyone interested in buying a home, you’ll come to learn that your credit score plays a major role in the process. Those with a good credit score will have very little trouble when buying a home, but those with bad credit score will struggle – though it’s not impossible!
What Credit Score is Needed to Buy a Home?
The credit score needed to buy a home will differ depending on the type of mortgage loan you’re interested in and a variety of other factors. As a general rule of thumb, you should have at least a 580 for FHA loans, a 620 for a conventional loan, and a 640 for a VA loan or USDA loan.
Anything above a 700 will put you in a good position, no matter what type of loan you’re after – but it’s not the only thing mortgage lenders are looking for:
- Debt-to-Income Ratio – a lower DIR means you’re responsible financially, while a higher DIR means you’re a higher risk to a lender.
- Down Payment – the higher the down payment, the more likely you are to get approved for the loan because you’re seen as less of a risk.
- Employment History – mortgage lenders are most interested in your income (can you make monthly payments?) and consistency (is your income reliable?).
- Savings – many mortgage lenders want to see that you have a good savings, that way you have a ‘plan B’ if things go south. The more in your savings, the less risk you are.
Your credit score affects the home-buying process in a number of ways. Since it’s an indicator of your financial responsibility, higher credit scores mean lower down payments and lower interest rates. Likewise, a lower credit score often mean higher interest rate and down payments.
5 Factors Impacting Your Credit Score
If you’re interested in fixing your credit score or improving it before buying a house, then you’re going to want to understand what factors into your credit score. There are five major factors that play a role in determining your credit score, but some factors play a larger role than others:
- Payment History – accounts for 35% of your credit score, more specifically your ability to make payments on-time.
- Debt & Amount Owed – accounts for 30% of your credit score, a high credit utilization means a low credit score.
- Credit History Length – accounts for 15% of your credit score, longer credit histories have more data and information.
- Account Diversification – accounts for 10% of your credit score, having a healthy mix of credit cards, loans, etc. is good for your credit.
- Recent Credit Activity – accounts for 10% of your credit score, applying for a lot of credit in a short amount of time hurts your score.
A little bit of improvement in each category goes a long way in improving your overall credit score. When you consider the reward (putting yourself in a position to buy a house), it’s well-worth the effort – whether you’re paying off credit card debt, getting on time with payments, etc.
How to Fix My Credit to Buy a House
Almost seven million people buy a home in the United States every single year, but that number could be a lot higher when you consider the amount of people that don’t have the credit score to get a loan. It’s not that they don’t want to own a home – they just aren’t in a position to buy yet.
That’s okay, though. There are a number of things you can start doing today to put yourself in a better position to buy a home soon by improving your credit score and we’re going to share some of those things with you below. With a little time, energy, and effort, you can succeed.
1. Check for Errors on Your Credit Report
Many people will go years and even decades without checking their credit reports. Although you might not see changes every month, keeping a close eye on your credit reports is a great way to catch mistakes or errors early on – ultimately allowing you to find a solution before it affects the score.
2. Pay Off Your Outstanding Debts
This one might seem obvious, but it’s important. If you have outstanding debts on your credit report, they aren’t doing your score any good. The sooner you pay those outstanding debts off (or at least sign up for a payment plan), the sooner you can start improving your credit score.
3. Stay True to Payment Plans
Speaking of payment plans, it’s important that you take them seriously. Make sure you’re paying the full amount due and always stay on-time with your payments. Doing so looks good on your credit report and will positively affect your score. Missed or late payments only make it worse.
4. Contact a Credit Repair Service
Whether you need help making sense of your credit report, organizing your debt, consolidating your debt, or any other guidance when it comes to your credit – contact a professional credit repair company. They specialize in helping people like you fix their credit at a reasonable rate with any budget.
5. Avoid Closing Credit Cards
Like we mentioned above, the length of your credit history is extremely important. That’s why it’s smart to keep credit cards open instead of closing them. If possible, use the minimum amount every month and pay it off on-time to show a long-term, sustained, and consistent credit history.
6. Keep Credit Utilization Ratio Low
Just because you have credit, doesn’t mean you need to use it. While it’s good to use your credit to build history, you don’t want to over-use it. Instead, do your best to keep your credit card balance low and pay off your debt on-time. This will reflect positively on your credit score.
We Specialize in Buying Homes for a Living
At Sell Your House Fast Kansas City, we specialize in buying homes – it’s what we do for a living and we love every second of it. If you or someone you know is interested in selling a home in Kansas City, don’t hesitate to contact us. We’ll put together a cash offer for you in no time!
