Impact of your Credit Score
How does your credit score affect home loan qualification?
Keep in mind that if you are applying for a loan, most lenders have guidelines as to which interest rates and loan programs they can offer you based on your credit score. The higher your credit score, the better your interest rate. Most lenders require a minimum score of 620 to qualify for a loan. It is a good idea to speak candidly with your chosen lender about this topic as they will guide you to the loan terms best suited to your needs.
What is the advantage of having a good credit score when buying a home?
When you apply for a home loan, the bank will check your credit report and credit score. If you have decent credit and enough income, you will likely get the loan. But the advantage of having good credit lies in the interest rate you will be able to get. With good credit, you will have a much wider range of available mortgage offers, and banks will be more likely to offer you a low rate if your credit score is good (over 700). Just one or two percentage points in interest can save you tens of thousands of dollars over the life of the loan. If you are unsure of your credit score and want to get serious about buying a home, there are free online tools like Credit Karma that allow you to see your credit score and credit report.
How to self-assess your own credit standing
Excellent: You have excellent credit if you have never declared bankruptcy or defaulted on a loan. If you have not been more than 60 days late on any credit card, medical bill, or loan in the last year AND if you have had a loan or credit card for 3 years or more with a credit limit above $5,000, congrats! Your credit score is likely very strong.
Average: You have average credit if you have defaulted on a loan in the past 5 years OR you have limited credit history. You may have had your own credit card or other types of credit for less than 3 years. This frequently includes students, people new to the U.S., or authorized users on someone else's credit card.
Rebuilding Credit: You have defaulted on a loan more than once OR you have been declined for a credit card in the last 3 months. Having bad credit can damage your ability to take out a loan, but the good news is that it isn't permanent. You can rebuild it over time by keeping good habits like paying bills and loans on time and establishing good credit.
Want more homebuying advice? Nestiny is a great place for homebuyer education and to help you gauge how ready you are to buy a home. Journey Homeward allows you to enter all of your wants and needs while the True Affordability Tool will break down your budget, showing what you can comfortably afford. You will also receive a free Ready Report that is personalized based upon the information that you entered. This report will give you a vital head start in the home buying journey, saving you valuable time and money.