When you are ready to buy your first home, you will most likely need to finance your purchase through a mortgage. If your credit history isn’t very long or if you’ve had some financial snafus over the years, you may be wondering if you will be able to qualify for a mortgage. Your credit score isn’t the only thing that mortgage companies look at, but it plays a very important role in determining whether or not you will be approved for financing.
So, how high should your credit score be to buy a house? That can vary according to the mortgage you are applying for and the type of interest rate you hope to get.
Your FICO® credit score is a number that gives lenders an idea of your credit worthiness. The exact way in which this score is calculated is proprietary, but it is based on your payment history, your debt to credit ratio, the amount of money you owe, and the length of your credit history.
These scores range from 300 to 850; anything above 750 is considered excellent, and anything below 550 is considered poor. According to Jessi Hall at Veterans United, “FICO no longer releases the median nationwide score, but at the last reporting in 2006, the national median FICO score was 723.”
You can obtain copies of your credit report from each of the three major credit reporting bureaus for free once a year. However, even though your credit score is based on the information these agencies have about you, and is calculated by each of them individually, it is not included with the free reports. To have this bit of information available to you, you must often pay a nominal fee of about $15 per credit score.
This does not mean that you cannot get your credit score for free, though. There are some credit card providers that will include a FICO credit score with each billing statement as a courtesy to their customers. These companies will frequently advertise this service, so if you see it offered, consider applying for a card. That way you can monitor your credit score on a monthly basis at absolutely no cost to you.
A high credit score will often qualify you for a lower interest rate, so if you want to ensure that you get the best possible rate on your mortgage, you might want to wait until you build your credit score up to at least 740. But what if you want to buy a house now and your credit is less than stellar? You may still be able to get a loan at a higher rate so long as your credit rating is not poor.
Some kinds of mortgages have minimum credit score requirements. According to M.C. Postins at SFGate.com, these requirements are:
The good news is that you can improve your credit score; the bad news is that it won’t happen overnight. The most important thing is that you continue to pay all of your bills on time. Also, do not limit credit card payments to the minimum payment due. Pay your debts down as much as you can reasonable afford to each month. The lower your overall debt and the better your payment history, the higher your score will become.
When you are ready to buy a house, be sure to speak with a local independent insurance agent in the Trusted Choice® network to get help finding a competitively priced home insurance policy. Believe it or not, an improved credit score can even impact your insurance rates.