May 7th, 2018 10:56 AM by ERA Big Sun Realty
Check Your Credit Score Before Buying a Home
When it comes time to buy a home, if you are like most people you will be looking for a mortgage. Getting a loan with an interest rate you can be happy with requires having a decent credit score, which is why it is so important to get your credit score before you go to buy. You want to know where your score is at to anticipate if you can purchase a house. Even if your score isn’t great, there are ways to improve it. So either way, check your credit score before buying a home!
It is also possible there could be mistakes on your credit report that cause your score to drop. Given the potential for errors, makes it vital to check your credit score before applying for a mortgage. Credit scores play a significant role in getting the best mortgage interest rates. When you are talking about something as big as a home mortgage, it makes sense to strive for the best terms and conditions possible. Preparing starts with getting your score correct if there is an error or just improving it to get the best deal possible.
While looking at homes is certainly exciting, preparing for getting a mortgage is an important part of the process to think about before ever stepping foot on a property. Preparation can be even more important for those who have never purchased a home before.
Your Credit Score
Credit scores are a part of the lending process that everyone has to deal with. Lenders need to have an excellent idea of how likely you are to pay back a loan before they give it to you, and your credit score is a big part of what they use. The three major credit reporting agencies – Experian, Equifax, and TransUnion – each keep a report of your credit history and use that history to calculate a score for you. The higher your score, the better you look to lenders and in most cases the better the terms of the loans you can get.
Each of the agencies uses a different formula for calculating your score, so you can expect to have three slightly different scores. Each organization will measure various aspects of your credit like how much debt you currently have, how long you have had credit, how much of your credit is currently being utilized and other information. Using all these different factors, they give you a score that tells lenders how good of a risk you are to lend to.
The max credit score is 850, but having a score so high is relatively rare. Only about ten percent of borrowers have a score above 800, so it is perfectly fine to have one lower than that. In fact, a score in the 700s is still quite good, and it is possible to get favorable loans with a score still as low as around 680.
The Effect Of Your Score On Your Loan
Your credit score will play a large factor on the loan you can get, or if you can get a loan at all. Every lender has cut-off points where they will refuse to lend. Say if you have a score of 580, most lenders will turn you down outright. Usually, as long as you have a score above 700, you should not have to worry about getting turned down straight away.
Loans can vary considerably in the interest rates charged and the various fees that can be tacked on by the lender. When you show up to a bank with a great credit score, you can expect low-interest rates and fewer fees, generally speaking. The lower your score, the more likely lenders will charge you a higher interest rate and the more likely they are to add expensive fees that can add up quickly. This translates into not getting the best loan terms which ultimately means you pay a lot more in the long run.
A credit score of 700 or above will usually be enough to get you the loans that you want and terms that you can be happy about. Once you get below 680, you should be prepared to shop around, because some lenders may turn you down – or offer you a loan you really don’t want to accept.
You Can Raise Your Score
One of the biggest reasons you want to check your credit score before buying is to get a clear understanding of where your credit is. You can raise your score by taking the right actions. Plenty of people with terrible credit have managed to repair their scores and eventually get a mortgage, so you do have options. It can be upsetting to discover you have a low rating, but fortunately, you can boost it back up if you try.
There are several things you can do to improve your credit score, including paying down debt, paying off collection accounts and avoiding taking out any new debt while you are trying to get a mortgage. Taking on new debt, while trying to buy a home, is, in fact, one of the biggest mortgage mistakes you can make!
Credit agencies will give you a higher score if you can lower the percentage of credit card debt you have to 30% or below the maximum for each card, a goal you should have if you want the best score. Often if you call collections companies, you can pay off your debt to them at pennies on the dollar if you try and negotiate with them.
The point of avoiding any new debt is an important one to remember. You want to do everything you can to look better on your credit report – not worse. Opening up another credit card and running it up, or buying a car using a loan, may knock your score to the point where you are out of reach of the loans you want.
Check Your Score Now
The three major credit reporting agencies are all required to give you one credit report a year for free. As long as you haven’t requested a free report in the past year, you can go online and download your three free reports. You can go to the Annual credit report to get all three. If you have gotten your report within the last year, it is still worth purchasing a new, current report so you can make sure all the information is accurate and get an up-to-date look at your score. You want to see the same things that the lenders are going to see when they check your information.
If you find any incorrect information on the report, make sure to request a correction in writing from the reporting agency.
If you are planning on buying a home soon, check your score now and take the time to fix it the best you can. Doing so could save you tens of thousands of dollars over the life of your loan.
Fixing Credit Report Errors
Is there a strong possibility there are errors on a credit report? There sure is! Let me repeat this again – make sure you check your credit score before buying a home! It is not uncommon at all to find mistakes on a credit report. In fact, inaccurate credit reporting affects millions of Americans. A 2013 Federal Trade Commission study discovered that 1 in 5 consumers have errors on their credit reports. Shockingly for one out of every twenty customers, the report said, those errors could mean paying higher interest rates for things like car loans or insurance.
When you find this is the case, it is important to understand how to correct the credit reporting errors. Use this excellent article as a guide for getting your credit report mistakes fixed right away. Follow the steps outlined and you will be on your way to having this financial issue resolved. In the long run, it will be well worth it.
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