You may not pay close attention to your credit score — but it can have a big effect when you buy a home.
You could end up paying a lot more for your home based on your credit rating. Generally, higher credit scores lead to reduced interest rates, and that helps you save money across the life of the mortgage.
If you plan to buy a property, begin working on your credit well in advance.
Verifying Your Report
Begin by checking your credit with one of the three main reporting agencies: Equifax, Experian or TransUnion. You can request one complimentary report every year from each agency, and access to these reports is available weekly at AnnualCreditReport.com.
Enrolling in an online service with a credit bureau can notify you of any changes to your credit, often at no cost. Some banks and credit card firms may offer regular access to your scores.
Keep a close eye on this score, since it’ll be reviewed by lenders when determining your interest rate. A higher score may open loan options that include lower down payment requirements.
Boosting Your Score
If your credit has become a barrier to getting favorable loan terms, there are measures you can take to boost your score before buying a home.
One recommended approach involves opening a low-interest credit card account to make some everyday purchases. Paying off the card in its entirety each month can raise your score.
On the other hand, carrying a balance — or, worse, missing payments — can negatively affect your credit. By practicing responsible spending and making timely payments, you can greatly improve your mortgage prospects.
If your score doesn’t begin to improve, reach out to your credit card provider and confirm that they’re reporting your activities to the three major credit bureaus.
Pre-Qualification
Managing your finances can feel overwhelming. If you’re having trouble, consider pre-qualifying for a loan. This process will clarify which homes you can afford, while helping you avoid accruing excessive debt after a bad buy.
The pre-qualification document from your lender outlines your borrowing limit. You’ll have more confidence in your buying choices based on a detailed payment plan and a confirmed interest rate.
Sharing a pre-qualification letter can boost your bargaining power with sellers, since it underscores your intent to buy.