Last Updated on
Maintaining a good credit score is imperative in many areas of your life, from taking out a loan to getting approved for an apartment. You may not realize it, but credit is more important than you think, and having bad credit can really set you back in life. Need an expensive car repair and can’t afford to pay out of pocket? A bad credit score can prevent you from opening a credit card or taking out a loan, meaning you could end up without a vehicle.
When it comes to buying a home, credit is a huge thing that is taken into consideration. There are many steps to buy a house, and having a poor credit score can make it all the more difficult. Here are a few of the biggest ways your credit score can make or break the home buying process.
Interest Rates
One of the parts of home buying a bad credit score can affect the most is your interest rates. While a person with good credit may be qualified for a conventional loan with lower interest rates, someone with bad credit will end up paying a lot more in the long run. Interest rates for people with bad credit can be as significant as a ten-thousand-dollar difference compared to someone with good or average credit, which is why it is important to know your credit score and take steps to improve it before buying a home.
You May Not Qualify for Conventional Loans
While a bad credit score may not allow you to qualify for a conventional loan, there are other ways you can get approved for a mortgage with less than perfect credit history. A government-insured FHA loan, for example, maybe available to those with a credit score as low as 500. However, the leniency that comes with these types of loans may also require you to pay bigger fees upfront, such as mortgage insurance and additional loan fees. If you feel that you may not qualify for a conventional loan, looking into your other options may be your best bet for getting approved.
Tips for Improving Your Credit Score
The best way to get approved for a mortgage and receive a better interest rate is by working to improve your credit score over time. One of the most important things that lenders want to see is that you have been working to pay off your debts both consistently and on time. One way to rebuild credit is by taking out a “secured” credit card, making small, manageable purchases with it, and then paying it off right away. This will help you reestablish your credit and get your score to a better place.
Good luck and happy house-hunting!
Reply