NewBuyer Blog

Credit Score for Buying a Home

Posted by Elizabeth Dennis on November 13, 2011 | No Comments

Building and maintaining good credit is essential when it comes to purchasing a house. The difference between good and bad credit can save or cost a homeowner thousands of dollars over the course of the life of a loan in terms of interest rate. Home buyers with good credit are going to be able to secure a much lower interest rate from a bank or a mortgage company than a person with much worse credit. In order to save you money, follow these tips on how to get your credit in order before purchasing a house.

Check Your Credit

One of the worst things you can do is to not keep on top of your credit report. Sometimes, mistakes do happen and you could wind up with some bad information on yours. As a result, you could see your score drop to an unacceptable level or you could wind up with a much higher interest rate. As a result, you should get a copy of your credit report at least once a year. This will allow you to make sure your it is accurate and you will not have any surprises. In addition, pull another one just before applying for a loan in order to make sure that everything is in order.

Close Some Accounts

Another good way to boost your credit is by closing store accounts. These store charge cards normally come with very high interest rates and fairly low limits. As a result, get rid of these by paying them off and closing them. You really only need one or two regular Visa or MasterCard cards in order to have the purchasing power you need.

Watch Your Limit

When buying a house, you will need some credit to play with. Therefore, it is important to not use more than 80% of the credit limit on revolving accounts. Having credit card accounts near their limit can have a drastically negative effect on your overall credit score. As a result, you will want to pay down as much as you can on your credit cards before applying for a home loan.

Re-establish Credit

If you need to re-establish your credit before buying a house, don’t just buy things you don’t need in order to show that you are now more responsible. Instead, get a secured card that reports just like a regular credit card. Use this card to purchase everyday items and at the same time, deduct the money from your checking account. That way, you will pay it off every month and your credit will be rewarded at the same time.

Put off Big Purchases

If you are thinking of making other big purchases right before buying a house, don’t. This will only have a negative effect on your overall credit. For example, if you also need a new car, put off the purchase until after you have closed on the house. The recent purchase will bring down your score and show up as a new and high debt which you have just incurred.