Your home may be the biggest investment you ever make. If you are looking for your dream home, you could stay there forever and end up paying principal and interest for up to 30 years. When you apply for a loan, your credit score can directly affect your ability to borrow the money you need, and it may increase the interest rate you pay each month, increasing the actual price of your house by hundreds of thousands of dollars.
If your score is above 580, you may qualify for an FHA loan, but a conventional mortgage loan often requires you have a FICO score of 720 or 740 in some cases. The importance of good credit brings you to the question of how you can build your credit score before buying a house.
Do not open new credit lines
For at least six months before you apply for a loan to cover your mortgage, avoid opening any new credit lines. This can lower your score temporarily as the credit bureau has no idea how you will handle the payments on the new loan. You may be offered a 10 percent discount at a department store to open a credit account, but it may cost you much more than that in the long run if it affects your ability to buy a house.
Make more than the minimum payment
One simple way to increase your credit score is to pay more than the minimum payment requires each month on revolving credit. Anyone looking over your credit report is not going to be impressed with payments that only meet the minimum requirements. Even if it is only a tiny bit, try to pay more on your credit cards each month.
Do not transfer balances
Many credit card companies offer introductory rates of zero percent interest to draw those in debt to move their balances over. This is a tempting offer as you can borrow money without the interest for a set period, but it can also hurt your credit score. You may get charged large fees and it is often harder to pay off debts when there is no interest.
Pay off but do not close credit cards
It is a good idea to pay off any open cards you have before applying for a home loan, but keep the accounts open without a balance on them to improve your credit.
It is exciting to buy a home, but there is no need to waste money on higher interest rates or poor loan options because your credit score is not the best. It is often worth it to take the time to improve your credit score before purchasing. If you have further questions about buying a home, we encourage you to speak to a real estate attorney today.