When you’re buying a new home, one of the key factors that come into play is your credit score. In addition to determining if you’ll be able to qualify for a loan, your credit score also affects the mortgage terms you’ll be able to get.
So how can you get a good credit score to buy a house? On this page, we’ll take a look at the factors mortgage lenders consider and how you can improve your credit score for a home purchase in San Francisco.
How high of a credit score is needed to buy a house
A perfect credit score isn’t required for getting a mortgage. However, credit scores are an estimation of the risk that a borrower will be unable to repay the loan, so lenders reward those with higher scores with more options and lower interest rates.
Most loan types require a credit score of at least 620 for a home purchase. Getting a score higher than that significantly improves your chances of getting approved. Borrowers who have scores under 650 typically make up a small percentage of closed purchase loans.
Check your credit score online
Searching online will help you find numerous websites offering free credit score reporting. Keeping tabs on your credit activity will help you address potential problems, and prevent your score from developing errors.
Resolve errors in reporting
If you see that your credit score has dropped, examine different areas that make up your score to identify what caused it. You can get in touch with your credit company and request them to omit any reported late payments you find. You can also file disputes on any incorrect items.
Avoid missing payments
Lenders look favorably upon those with a history of consistent and on-time payments. Any late, insufficient, or missed payments affect your credit report negatively.
This is why it’s important to make sure you pay your bills fully and on time whenever you’re able. Keep in mind that payment history has the biggest impact on your credit score since it accounts for 35% of a lender’s calculation.
Reduce your debt ratio
Your debt ratio is the second-largest factor that makes up your credit score. It is equivalent to around 30% of the score and is dependent on several factors. It considers the number of open accounts you own and the credit utilization ratio for every account. To maintain a good credit score, try to keep all credit accounts 30% or below their available limit.
Be conservative with your finances
When you’re applying for a mortgage, avoid unnecessary splurging or opening a new credit card account. Reducing your debts, keeping spending habits under control, and avoiding hard credit inquiries and significant purchases is a smart move when you’re planning to purchase a home.
These are some of the things you should keep in mind to help you improve your credit score for a San Francisco home purchase!
Get first-class real estate service for your home search in San Francisco! Contact me, Amir Hardy, at 415.602.0570 or send an email to amir(dotted)hardy(at)compass(dotted)com.