With the new year coming up, you might be thinking about buying a home, right? It's a pretty exciting goal and it's never too soon to start getting ready for it. One really important thing to do to get ready to buy a home is to work on building up a good credit score.

When you apply for a home loan, the lenders take a peek at your credit history to see if you've been good at making payments, handling debts, and all that jazz. This not only gives them an idea of whether you can handle a mortgage but also plays a role in setting the interest rate for your loan. There was this cool article on CNBC that explains it all in detail.

“When it comes to mortgages, a higher credit score can save you thousands of dollars in the long run. This is because your credit score directly impacts your mortgage rate, which determines the amount of interest you’ll pay over the life of the loan.”
— CNBC

Basically, your credit score is extra crucial for buying a home at the moment because mortgage rates play a big role in how affordable it is, especially today.

Hey, did you know that the average credit score for folks getting a mortgage in the US is 770? But don't worry if your score isn't perfect. Here's the deal, your FICO score range can still have an impact, as explained in a Business Insider article.

“. . . you don’t need a perfect credit score to buy a house. . . . Aiming to get your credit score in the ‘Good’ range (670 to 739) would be a great start towards qualifying for a mortgage. But if you’re wanting to qualify for the lowest rates, try to get your score within the ‘Very Good’ range (740 to 799).”
— Business Insider

If you team up with a reliable lender, you can learn a lot more about how your credit score might influence your home loan and the interest rate you'll receive. FICO suggests that working with a trusted lender is key to understanding how your credit score can impact your mortgage.

“While many lenders use credit scores like FICO Scores to help them make lending decisions, each lender has its own strategy, including the level of risk it finds acceptable. There is no single “cutoff score” used by all lenders and there are many additional factors that lenders may use to determine your actual interest rates.”
— FICO

If you're trying to boost your credit score, Experian has pointed out a few things you should concentrate on.

  • Your Payment History: If you miss payments or pay late, it can totally bring down your credit score. The key is to make sure you pay on time and clear any late fees ASAP.

  • Your Debt Amount (relative to your credit limits): When it comes to the amount of credit you have available, it's best to use as little of it as you can. Keeping your credit usage low is the way to go!

  • Credit Applications: f you're thinking about making a big purchase, hold off on applying for more credit. Getting a new credit could lead to a hard inquiry on your credit report and cause your credit score to drop.

Sure thing! Here it is in a conversational tone: "When you work with a lender, they'll guide you through everything from figuring out your credit score range to explaining the details of different types of loans."

Bottom Line

If you're thinking about buying a home this year, it's a great idea to work on improving your credit score. This can really make a difference in the mortgage rate you'll be offered later on. If you're interested in finding out more, it's a good idea to reach out to a reliable lender.