Owning a home can be a rewarding and exhilarating experience in anyone’s life. There is responsibility, security and comfort with having a place of your own.
Whether you’re a first time homeowner or looking to refinance or buy a new home, understanding credit scores is essential to your chances for success in the real estate market.
Mortgage brokers will look at those magic three digits that make up your credit score. A low score could lead to higher interest rates or even result in being disapproved entirely on property purchases.
Your three-digit FICO credit score is comprised of five parts:
- Debts Owed
- New Lines of Credit
- Time Period of Credit History
- Types of Credit in Use
- Payment History
Below is a simple checklist for the best practices and habits for building and maintaining a healthy credit score.
How to Build a Good Credit Score
1) Improve Your Credit Score
- Simply pay on time. This includes any and all monthly bills, utilities, and credit card payments.
- Keep balances low. The higher debts you have, the more difficult it is to pay them off.
- Pay off collections, outstanding tickets, and judgments against you as soon as possible.
2) Visit a lender to see what loans you qualify for:
Compile a list of your assets and a current record of your job history. This information helps your lender pair you with a loan that best suits your specific circumstance when taking into account your debt-to-income ratio.
3) Pre-qualify for FHA Loans:
FHA loans are property loans insured by the Federal Housing Administration and protects lenders from losses if the borrower defaults on a loan.
Typically, one can qualify for a FHA loan with a lower credit score than other loan choices and, in addition, interest rates can still result in numbers as low as 3.5%.
It is essential in the pre-qualification process for FHA loans for individuals to demonstrate employment history, reliability, and stability.
A Note: FHA loans require mortgage insurance and are commonly higher than loans from a private institution.
4) Consider Credit Counseling
If your debt-to-income ratio is fairly high, credit counseling could help you significantly lower the long term, negative effect on one’s credit score.
Credit Counseling incorporates a personalized budget that will help you manage your debts and create a strategic path towards financial stability.
Many institutions like Clearpoint, offer pre-purchasing counseling specifically focusing on first-time-homebuyers, where they help you set up a monthly budget and get you prepared for the additional costs of home ownership.
Credit repair companies like Atlanta Credit Repair also offer free consultations and work with major credit bureaus to help you improve your credit score.
What Not To Do
- Do not cut up your old credit cards:
- If you’ve paid off an existing balance, one way to boost your score is to make a few small purchases and pay them off again. This averages your credit score upwards.
- Do not open new credit card accounts:
- Work with what you have, and keep the balances at 30% of the overall credit limit or lower.
The Atlanta Homes Team has a list of preferred lenders, while other customers sometimes like to look for lenders like the Fidelity Bank, all working towards approving their clients for the best loans and making one’s dreams of owning a home their reality. Get free credit scores here to get started on the financial path to owning a home.
Staying focused and keeping track of your finances is the optional way to achieve high credit and ultimately, putting you one step closer to owning your new home. Contact The Atlanta Homes for more information on preparing your finances to buy a home.