When it comes time to buy a home, pay attention to your credit score. This is important to help you qualify for a home loan and receive a better rate. So what should your credit score be? It depends on your lender and the type of loan.
The general principle is that the higher your credit score, the better interest rate you’ll receive because you pose less risk to the lender. However, there are many other factors involved in getting a mortgage or prequalifying for a mortgage. Following these tips from Bonvenu Bank can help increase your credit score and make you more qualified to buy a house in Louisiana.
What Should Your Credit Score Be to Buy a House?
Credit score requirements vary from lender to lender and the type of mortgage loan you are seeking. We recommend speaking with one of our mortgage professionals prior to requesting a prequalification or submitting an application for a mortgage loan. They will be able to give you more details regarding minimum credit scores. For a conventional loan or other mortgages that are not sponsored by the government, aim for a credit score above 700 to receive a better home loan rate.
If you’re not sure how your credit will be interpreted by lenders, you can use the Credit Assessment Calculator from Bonvenu Bank to calculate it as 'Good', 'Fair' or 'Needs Improvement'.
How to Increase Your Credit Score
If you want to increase your credit score to qualify for a lower interest rate, start by getting a free copy of your credit report, available through credit reporting sites like annualcreditreport.com, Experian and TransUnion. You can also check your credit score in your online banking account at Bonvenu Bank and monitor activity to ensure all information is correct.
Your credit score is determined by several factors, including your payment history, total amount owed, length of time you’ve had credit, the different types of credit you’ve used and what’s considered new credit, including new loans and accounts.
To improve your credit score before buying a house, create a plan of attack to improve as many of those categories as possible.
Fix Errors on Your Credit Report
One of the easiest ways to improve your credit score is to fix errors. According to one Consumer Reports study, nearly 27% of consumers found errors that were serious enough to affect their creditworthiness. Use these tips from the FTC to dispute any errors you may find on your credit report.
Always Pay Your Bills on Time
One of the most important factors when it comes to creditworthiness is your ability to pay your bills on time. Use online or mobile banking through Bonvenu Bank to set up recurring payments for your standard monthly bills and make good on any past-due bills. If you’re having a tough time paying your debt, reach out to your lenders to discuss different payment options, or negotiate to ask if they’ll hold off on reporting your late payments to the credit bureaus.
Pay Down Your Debt
Keeping a lower debt-to-credit ratio can help improve your credit score. Lenders want to see that you’re living within your means before they allow you to take on more debt. Reducing your debt also frees up more of your income, which helps improve your debt-to-income ratio, a criterion that lenders look at before extending new credit.
Request More Credit
Another way to improve your debt-to-credit ratio is to ask your credit card companies to increase your credit limit, if that’s an option. This will give you more available credit and help bring that ratio down, which can increase your overall credit score.
Don’t Close Old Accounts
It may seem logical to close accounts with a zero balance, but old accounts provide a credit history, so it’s wise to keep them open. This also rings true if you are recently married or have had another major life event that would trigger you to close accounts.
Keep New Credit to a Minimum but Diversify Credit Types
Avoid applying for new credit cards before you buy a house. This can signal to lenders that you need credit and may be in a difficult spot financially. However, if you don’t have a mix of different credit types, you may want to start by adding an installment loan, such as an auto loan or a small personal loan, to show lenders you’re creditworthy and can repay a loan on time.
Improving your credit score can take time, but it’s well worth the effort and planning when you qualify for a mortgage and get a lower interest rate on your home loan. Contact Bonvenu Bank to learn more about how to improve your credit score before buying a home in Louisiana.
