07 May How is your Credit Rating vs. The Rest of America?
The average credit score of American’s is now 700, this is the highest level since the Great Recession. That means if your score is above 700, you are doing better than 50% of the population. This number has a direct impact on what it will cost you to buy a home. In this article we talk about some amazing opportunities for buyers with great credit scores. Then we share the best loan options for people with lower scores and how to quickly increase your rating.
With a score above the average number, people have a better chance of loan approval and are able to receive more favorable rates for home financing. A good credit score can even mean a 1-2% difference in the interest rate. Because home mortgage loans are so large, this can be a significant amount of savings over time. Lower interest rates, means lower monthly payment, means lower risk reputation.
Conventional loans require at least a score of 620. With a 700 or more, a high-credit scoring borrower has the opportunity to put less down towards their loan. That can mean as little as 3% versus the 10% needed with a score of 579 or less.
Lenders are not only attracted to a higher score, but the credit history of a borrower. A good track record of consistent, on-time payments, and the amount of credit accounts open, all go into consideration and result in providing candidates the best deals.
With lower interest rates, debt becomes more manageable. Less money is spent, monthly bill payments stay low, and all the while credit is increasing. This is a positive cycle and a good habit to maintain.
What if I have a lower score?
If a score is below the 700 average, it is still possible to obtain a great FHA rate when buying a home. What is a FHA loan? A government-backed mortgage insured by the Federal Housing Administration (FHA). They require a lower minimum credit score and down payment compared to most conventional loans. This is a great option if borrowers are working on better credit and are popular with first-time home buyers.
Alternatively, becoming a homeowner, getting a mortgage, and making payments on time can be a great tactic to increasing your credit score. It may also be one of the quickest ways, especially if you’re an individual or a couple looking for a starter home.
Over time, you’ll gain a stronger credit history and it will be easier to maintain a score over the ‘American average of 700.’ This will also help you secure a lower interest rate when applying for credit or financing another large purchase.
How to Improve a Credit Score:
Make sure you’re paying attention to how lenders look at the credit scoring. FICO is the most popular score used. There are 3 different scores lenders will analyze to decide your ‘creditworthiness,’ using information from the main credit report agencies (CRAs) – TransUnion, Equifax, and Experian.
Take a closer look and you’ll learn that you have up to 28 different scores. How? Within each CRA, your score breaks down into 3 categories: credit cards, auto lending, and mortgages. Be sure lenders are taking a full report from each CRA when applying for a home loan. This can up your mortgage score 30-40 points or more. Lenders can use any score to make their decision and this helps you keep your responsible and healthy borrower reputation.
Do a credit repair report and learn how you can improve your score. Some tips may include paying more than your minimum balance due on time, negotiating with creditors to reduce or consolidate your payments, or setting up automatic payments.
Look further into your credit report and get a true understanding. See if you have any missed payments, know the total amount of debt owed, and the types of accounts open. Also make sure there are no errors, discrepancies, or false information on your report. Resolved issues can immediately improve your score.
More Americans are taking better care of their credit after experiencing the damage that the market brought during the 2008 Recession. The more informed people are about where they stand, the more control they can take on managing debt. By making more consistent on-time payments and living within their means, borrowing consumers are now contributing to building the financial health as a country, and that’s good news for us all.
This article is intended to be accurate, but the information is not guaranteed. Please reach out to us directly if you have any specific real estate questions or would like help from a local professional.