How Does Your Credit Score Affect Your Ability to Buy a Home?

Buying a home can be a daunting time for everyone involved. Whether you’ve found your dream home or not, just the thought of owning your own home is terrifying and exciting at the same time.

If you’ve been living or renting with your parents for years, you finally have a place of your own. It will be freedom unlike any other. Paint the walls any color you want, leave your dishes in the sink, place the lounge in the corner of the room instead of the center. The options are endless.

But with all that excitement comes serious financial responsibility, which is why you need to exhaust all options when it comes to financing. For most people, this means going to a bank and getting a mortgage, but in order to do that, you have to understand that the bank is not going to give money to just anyone.

When it comes to getting approval for a mortgage, one of the first things they will do is run a credit check. This will play a big part in determining whether or not you qualify for financing, and if your credit check fails, your chances of getting a home loan are minimal.

Like Darren Robertson from Northern Virginia Home Pro say, “Buying a home is a huge decision and it can be not only exciting but also a very stressful time. This stress can be greatly alleviated by checking your credit score before you shop to avoid huge disappointments when you find the right home.”

So, what is a sufficient credit score to buy a home?

What is a credit score?

A credit score is a three-digit number between 300 and 700 that is calculated by companies like Equifax. Essentially, it is a numerical representation of your financial history and current financial health. Your credit score is calculated by an assessment of your finances throughout your life, including your payment history, your used and available credit, how long you have used credit, public records and investigations in your credit file.

What is good, bad and average in a credit score?

So, what is considered a good credit score, a bad or an average? Find out below what is typical for each!

Good

A credit score of 600-700+ is considered a ‘good’ credit score. This allows you to get a loan faster and easier than someone with an “average” or “poor” credit score. This can mean lower processing fees, lower deposits and lower interest rates. All good things when you are looking for a mortgage. If your credit score is around this figure, you are doing something right.

Average

A credit score of about 550 is considered an “average” credit score. Most people will have a credit score around this number, which may mean you will still receive financial benefits from the bank when you apply for your mortgage. But it also means they won’t be as good as those with higher credit scores. It may not be ideal, but it’s not a disaster.

Bad

A credit score of about 300-400 is considered a “bad” credit score and will likely negatively impact your financial prospects when buying a home. An important thing to note is that having a bad credit score not necessarily exclude you from financing. Instead, you may qualify for a “poor credit mortgage,” with higher processing fees, higher interest rates, and higher deposits.

How does it play a role in a bank’s decision?

Banks take calculated risks with their customers when they offer to finance their home through a mortgage. Having an average or good credit score is obviously more favorably received by a lender than a bad credit score. However, banks can still take a gamble, but it is a risk on their part if you default on your mortgage.

What is ‘good enough’?

Typically, for most financial institutions that lend you money, credit scores of ~550 and above are considered good enough to qualify for traditional home mortgages. So if you are considering applying for a loan, make sure your credit score is somewhere around 550 or higher.

How can you raise your credit score if it is insufficient?

Can you raise your credit score if it is too low?  |  How a Credit Score Affects Buying a Home
Can you raise your credit score if it is too low? | How a Credit Score Affects Buying a Home

Suppose your credit score is currently insufficient to qualify for a loan and your bank has rejected you. What are some ways you can boost that credit score so you can get that much-needed loan?

View your current credit score reports

The best chance you have of improving your credit score is to first consider what you are working with. You can request a copy of your credit report from any of the major national credit bureaus: Experian, Equifax, and TransUnion. In fact, you can do this once a year for free via the Credit Annual Report website.

From these reports, you can see exactly what helps or hurts your credit score. Factors that contribute to higher scores include low credit card balances, a history of on-time repayments, having a combination of credit cards, loan accounts, and having minimal new credit applications. Conversely, late or missed payments, collections and convictions, high credit card balances are major contributors to credit score.

Prioritize timely refunds

Over 90% of the best lenders use FICO credit scores, which are made up of five factors:

  • Payment History – 35%
  • Credit usage – 30%
  • Age of credit accounts – 15%
  • Credit Blend – 10%
  • New credit applications – 10%

As you can see, the biggest impact on your credit score is your payment history, so an easy way to improve your credit score is to prioritize avoiding late payments.

Keep your credit usage at 30% or less

Credit utilization refers to the portion of your usable credit that you use at any given time. After payment history, it is the second most influential factor used in FICO credit score calculations. Whenever possible, keep your credit usage at 30% or less of your available credit. Keeping it at 10% or less is ideal, but 30% is a solid starting point.

Aside from simply paying most of your credit, there are a number of ways around this. First, you can deposit your wages into your credit card and pay for your living expenses along the way – this doesn’t keep it permanently low, but at least it minimizes it regularly. You can also request a credit increase and then make sure you don’t eat up the new available credit.

Limit your new credit applications

Questions that can negatively affect your credit score include applying for credit, such as credit cards, a car loan, a mortgage, or any other form of credit. An occasional application probably won’t make much of a difference, but multiple attempts within a short period of time can hurt your score. So if you’re in the business of improving your credit, avoid applying for new credit for a while.

Improving your credit score is an important goal to focus on, especially if you are planning to apply for a large purchase loan, such as a new house or car. It may take several weeks or months to see noticeable change in your score once you start taking the necessary steps to turn it around, so it’s best to get started right away.

There’s no quick fix when your credit is down, but if you’re ready to buy a home, a consistent display of financial responsibility over an extended period of time can be enough for a bank to take a risk on you. to take.


About the Author: The above article on “How Your Credit Score Affects Your Ability to Buy a Home” was written by Rochester NY real estate agent, Kyle Hiscock, with RE/MAX Realty Group.

Since its launch in 2013, Kyle has published over 150 high-quality, in-depth and unique real estate related articles on the Rochester Real Estate Blog covering topics ranging from home sales to mortgages and everything in between! In addition to quality real estate related content, there are also many quality articles related to the Greater Rochester NY area.

The Rochester Real Estate Blog has been recognized by many reputable websites as one of the best real estate blogs to visit and follow! In addition to being recognized as one of the best real estate blogs, Kyle has been recognized as one of the best real estate agents on social media by various organizations and websites.


About Rochester’s Real Estate Blog: Rochester’s Real Estate Blog is owned and operated by Kyle Hiscock of the Hiscock Sold Team of RE/MAX Realty Group. With over 40 years of combined experience, if you’re considering selling or buying, we’d love to share our knowledge and expertise.

We serve the following areas of Greater Rochester NY: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chile and Victor NY.

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