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Credit Scores and What They Mean When Buying a Home

Your credit score plays an important role when you're buying a home. A credit score is a number dependent on your credit history that helps potential lenders assess the risk of lending you money. It's not just about how many credit cards you have or whether you pay your bills on time – it's also about how much debt you have, and that debt is from revolving balances. These factors are what lenders look at to determine your credit score. 

How Does Your Credit Score Impact Your Ability to Buy a Home?

When you apply for a mortgage, your ability to get approved will depend on several factors, but the main one is your credit score. The higher your credit score, the more likely you are to get approved for a mortgage and the lower your interest rate. 

High credit scores will assist you in getting the best interest rate, making your monthly mortgage payment more affordable. Additionally, a high credit score often means you can qualify for a more significant loan amount, which means you can afford a more extensive and more expensive home. 

A low credit score might mean that lenders will require a larger down payment, charge a higher interest rate, or deny you a loan altogether. If you have a low credit score, you might have to pay a higher mortgage insurance premium, adding hundreds of dollars to your monthly housing costs.

Improving Your Credit Score Prior to Buying a Home

Credit repairs take time, so if you're not happy with your credit score now, it's best to start working on improving it now. There are a few tips for building a solid credit score that includes the following:

• Keep track of your credit card payment history - Credit card payments are reported to the credit bureaus every month. If you owe your credit cards, you're leaving a negative mark on your credit report. You can avoid hurting your credit by ensuring that you pay your credit card bills in full and on time. 

• Make on-time mortgage payments - Mortgage payments are also reported to the credit bureaus. Make sure to make all of your mortgage payments on time, as this is one of the best ways to build your credit quickly. 

• Avoid applying for multiple loans at once - Applying for too many loans can damage your credit score. Ideally, you want to apply for one loan at a time.

Conclusion

A good credit score is essential for a happy home buying experience. Having a low debt-to-income ratio can make it easier to get a mortgage and save you money by getting a lower interest rate. When you improve your credit score before looking for a home, you make this process much more manageable. When you're buying a home, your credit score is what lenders use to determine if they'll lend you money and how much interest they'll charge you to do it. A high credit score can save you money and make homeownership more attainable.