As mortgage interest rates continue to fluctuate, many potential buyers are considering whether now—or the near future—is the right time to buy a home. If you’re thinking about making a move, laying the groundwork early is essential. One critical aspect of this preparation is building and maintaining a strong credit score, which plays a pivotal role in your ability to secure a mortgage.
The Importance of Creditworthiness
Credit scores are a key factor in determining not only whether you’re approved for a mortgage but also the interest rate you’re offered. A higher score can translate into significant savings over the life of your loan. According to the Consumer Financial Protection Bureau, “A higher credit score can lead to better mortgage rates, ultimately saving you thousands in interest over the life of a loan.” This underscores the direct impact creditworthiness has on affordability in today’s housing market.
What’s a Good Credit Score for a Mortgage?
Contrary to popular belief that you need a perfect score, most lenders consider a score in the “Good” range (670–739) to be a solid starting point. For the best rates, aim for the “Very Good” range (740–799). The Federal Reserve Bank of New York reports that the median credit score among mortgage applicants in the U.S. is around 770. High, but not perfect, scores are common.
Steps to Strengthen Your Credit Score
If your score could use some improvement, financial experts offer actionable steps:
- Pay on Time: Payment history is the most significant factor influencing your score. Always prioritize on-time payments to prevent penalties.
- Reduce Credit Utilization: Aim to keep your credit card balances below 30% of their limits. Lower utilization rates indicate better financial management.
- Limit New Credit Applications: Too many hard inquiries can temporarily lower your score, so only apply for credit when necessary (source)
Consulting a Lender
Mortgage brokers and lenders often use tools like FICO scores but apply unique criteria to assess risk. As FICO clarifies:
“Each lender has its own strategy, including acceptable risk levels and scoring criteria, which means there’s no universal cutoff score.”
As you start planning for homeownership, a good foundational step is to understand your credit score and how you can improve it. Speaking with a knowledgeable mortgage broker who is willing to help you understand all of the factors, including your credit score, and how they influence your options, rates and monthly payment is pivotal. If you’re looking for help or advice; don’t hesitate to reach out to me: kelsey@livingroomre.com | @kcb_portland.
