While you’ve probably seen ads on television and online offering to check your credit score, you may wonder if it’s really a big deal or not. Here are a few reasons why your credit score really does matter when you’re planning to buy a house.
Even what appears to be a small difference in interest rates (due to bad credit) can have over the course of your home mortgage loan. This example (from morgagecalculator.org) shows that just one half of a percentage point difference can increase your annual payments by about $880. And over the life of your loan, you could pay about $26,500 more for the exact same house.
Images from mortgagecalculator.org
The specifics of what makes for a good credit score versus a bad credit score can vary a little bit. Still, the illustration at the top gives a pretty good rule of thumb.
Below 560 = Very Bad
560–620 = Poor
650–699 = Fair
700–749 = Good
750+ = Excellent
The three major sources for checking credit scores are Equifax®, Experian®, and TransUnion®. You can request a free copy of your credit report from each of three major reporting agencies once each year at AnnualCreditReport.com. Or call toll-free 1-877-322-8228. Or you might want to check out this helpful article from Forbes on How to Get Your Credit Score Completely Free.
Another option is to shop lenders for mortgage loans. They will actually run credit checks before making a loan. Another advantage to doing this through a reputable lender is that you’ll not only learn your credit score, but you’ll have a better understanding of how much of a loan you’ll qualify for. This will help you in selecting a floor plan based on how much you can afford.
Just because you have a poor credit score that doesn’t mean you can never buy a home. You can rebuild or establish your credit. We’re homebuilders, not credit experts, but there is a lot of good information available to people who want to begin to improve their credit rating. Educating yourself is a great first step.
A big first step involves understanding how you ended up with a poor credit rating in the first place. The online site credtcards.com has a helpful article that highlights 18 things that hurt your credit score. Some of the information will come as no surprise to you (such as not paying a credit card bill or loan on time). But there are other things that you might not realize can hurt your credit, such as:
Try to get to the real reasons your credit may have taken a hit. Once you know what caused the problem you’ll be in a better place to fix the situation.
Of course, you’ll need to take action. There is a lot of helpful information available for people who want to improve their credit rating such as this MoneyTalksNews post, Boost Your Credit Score Fast With These 7 Moves.
You won’t repair poor credit overnight, but it’s important to identify the problem and start working on it now so that you’ll put yourself into a position in which your credit rating helps you get the best possible deal on your new home—instead of making it more difficult.