Every time you apply for credit, whether it’s a home loan, a credit card or even an apartment lease, the lender checks your credit score. This score is based on your personal credit history and determines how risky you are as a borrower. Higher scores give you better chances of getting the best interest rates and mortgages.
Think of your credit score as your personal credit report’s grade. Today, let’s take a closer look at credit scores. How do you know if your credit is enough to buy a home?
Here’s what you need to know:
What is a Low Credit Score?
Credit scores can range from 300 to 850. It’s the most commonly used credit score in the U.S. Typically. You can only get a reasonable interest rate if you have at least a 700 credit score when applying for a mortgage.
However, this number is not absolute. A few lenders are willing to work with borrowers with a lower credit score because they have a high income and large down payment.
Furthermore, some lenders may be willing to give you a loan even with a credit score under 620. But that’s generally considered a subprime loan and typically comes with significantly higher interest rates.
How are Credit Scores Work?
Usually, people with good credit scores are likely to pay their bills on time and are less likely to default on their mortgage loans. Mortgage lenders use credit scores as a measure of your creditworthiness. They want to know if you can pay back the loan and if you’re likely to default.
Your credit score is based on your historical payment history and represents your loan repayment likelihood. If you have a good score, the lender may be willing to lend you more money at a lower rate. If you have a bad score, you’re more likely to get a high-interest rate.
How to Improve Your Credit Score
The credit score is largely based on your payment history. Therefore, if you have a low score, take steps to improve it by paying your bills on time. The credit bureaus will likely improve your score if it shows that you have been paying your bills on time. The goal is to have a FICO score of around 750 or higher in most cases.
What is the Best Credit Score for a Mortgage?
Credit scores range from 300 to 850. If you’re applying for a mortgage, you’re aiming for at least a score of 740. However, this number is not absolute. There will be lenders willing to work with borrowers with a lower credit score because they have a high income and large down payment.
Additionally, if you have less than perfect credit, you may be able to buy a home if you have a cosigner.
Improve your credit score. The higher your credit score, the better your chances of getting the best interest rates and mortgages. Lenders will also be more likely to approve your mortgage loan if you have a decent credit score. If you are ready to buy a home, we can help you find the best mortgage rates and the best home loans for your financial situation.
If you are looking for mortgage services in your area, we can help you. Ottawa Mortgage Services provides mortgage agent services for first-time homebuyers, self-employed individuals, and commercial clients. It also helps with refinancing, pre-approvals, and debt consolidation. Contact us today to learn more or get started. Apply online now!