You’ve been living in an apartment for several years, and while you appreciate the freedom they offer, you’re ready to plant some roots and buy a home. You have money saved for a down payment and know the neighborhood you want to live in, but now, the problem holding you back is your credit score. If you’re concerned it’s too low to get a mortgage, or at least a decent rate, we’re sharing 5 ways to fix your credit before buying a house.
Why Is Your Credit Score Important?
Your credit score is heavily weighed when it comes to getting a mortgage because it allows lenders to see your history of how you take care of debt. If you have a high credit score, this shows:
- You make payments on time
- Have an established credit history
- Keep your credit utilization low
- Minimize how often you apply to take out lines of credit (ie: credit inquiries)
A lender can assume you are a good risk to lend money to if you have a high credit score. However, even homebuyers with lower scores may be eligible for a mortgage, depending on the type of loan and at a higher interest rate.
What Is the Minimum Credit Score to Buy a House?
- Conventional mortgage: 620
- VA Loan: 620
- FHA Loan with 3.5 percent down: 580
- FHA Loan with 10 percent down: 500
Some lenders do require higher scores while others will lend to buyers with low credit scores but will increase the interest rate to buyers with lower scores, but if you ha
5 Ways to Fix Your Credit Score Before Buying a House
Now that you know how credit scores affect your ability to buy a house and why it’s important, let’s look at ways you can fix your credit to get the house of your dreams.
Run Your Credit Report
First, it’s important to go beyond your credit score and run a comprehensive credit report. The government provides you with a free credit report from all three reporting companies once a year at annualcreditreport.com. Print out the report and look for errors, such as incorrect information and outdated negative reporting. Your report will have information to report incorrect information and the bureau will investigate your claim. If there is information on there that shouldn’t be, they’ll remove it, most likely improving your score.
Make Payments on Time
Your payment history counts for around 35 percent of the weight of your credit score. While you can’t do much about previous late payments, establishing consistent payment history will increase your score over time. Set payments on auto-draft, create reminders, or do anything you can to avoid a late payment.
Ask to Have Negative Information Removed If Closed
If you have a closed account that has negative information, such as an account in collections that you paid off, call the collection agency and see if they will remove it from your credit report. This will improve your score. Only do this with accounts that you don’t still owe as contacting a creditor can restart the time they’re allowed to keep the account on your credit report.
Reduce High Balances
Credit utilization refers to how much of your lines of credit are in use, and this counts for 30 percent of your credit score. If you have credit cards that are close to their limit, increase your payment (even just $20 a month can make a difference) and strive to get your credit limit below 50 percent, and preferably 30 percent.
Consider Debt Consolidation
If you are juggling several bills, are close to maxing out cards, and missing payments, consider debt consolidation before buying a house. This rolls your balances into one payment, and in doing so, this can reduce your credit utilization while making it easier to avoid missing payments since you’re only keeping up with one bill.
Contact Us to Look at Homes for Sale in Minneapolis
If you’re ready to look at homes for sale in Minneapolis, or you’d like to learn more about the home buying process, we can help! Contact Stutsman Realty, Inc. today by calling 952-927 4144 or filling out the form below to get started.
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