Most of us, if not all, strive to have the highest credit score possible to help us qualify easier for auto, personal, and/or mortgage loans. How does one do this? Paying one’s bills on time, using a credit card moderately and paying it off in full each month, and basically not spending more than you earn to build a healthy savings account. Being smart and responsible with your money is essentially the key to attaining and maintaining a high credit score.
But sometimes, a few of us fall on a bit of bad luck and our FICO score flies south — not just for the winter but for a long time. It takes a lot of work to bring your credit score back to a respectable number after a tumble. The importance of keeping it as high as it can be is vital — especially if you’re in the market for a loan, a mortgage loan in this case.
What if you have a score of say 520 (850 is a perfect score) and want to by a house? Most people, even lenders, would tell you to go back and work on upping that score to at least 620 or above to qualify for a mortgage loan in today’s market.
For argument’s sake, let’s say your score isn’t going up any time soon for one reason or another but you really want that house. If that’s the scenario, then, if somebody decides to lend to you, you’ll be paying a much higher interest rate. If you have the cash, you’ll have to come up with a sizable down payment, as well — all to nullify your poor FICO score. It’s all about reducing the risk for the lender. The more “skin in the game” the buyer has, the less risk to the lender.
If you do have the luxury of a little time to raise your score — say a year, then, again, its time to flex your credit card muscle with smart spending and paying it off in full each month, as well as paying your bills on time.
In addition, taking a year to build your credit and raise your score to a “qualifiable” number gives you more time to save up for down payment that will keep those monthly payments as low as possible and use for closing costs, as well. Rushing to buy a new home because your emotions get the best of you, is rarely a good idea. Take your time to get your financial ducks in a row first.
Taking the necessary time to ensure your credit score is where it needs to be to help you qualify for a loan is essential in buying your home. Your score is one of the biggest items lenders review when approving your loan application. You want that house? Make sure your score is where it needs to be. If it’s not there, be smart with your money and it will build. You’ll get there soon enough.