You’ve probably heard that everyone has a credit score. Strictly speaking, this isn’t true. A credit score is created from a variety of facts based o the funds you borrow and how good you are at repaying them
In essence, if you never borrow any money you’ll never have a credit score. Of course, most people need to borrow money at some point, especially if you want to buy a house. The credit score system was introduced in 1989 to help make it easier and fairer to borrow money. Prior to this, there was no consistent way to evaluate people.
Today, if you want to borrow money for anything you need to understand what is a good credit score, what affects your credit score, and what credit score is needed to buy a house.
What Is A Good Credit Score?
Your credit record pr score starts at zero. This is when you have never borrowed funds but are applying to. In order to increase your score, you need to borrow money and repay it on time. This shows lenders that you are a good risk.
Borrowing small amounts and repaying them quickly will help to push your credit score upward. However, it should be noted that the credit scoring system isn’t updated in real-time. That means it can take up to six months for your newly acquired credit score to show.
Most people in the US have a credit score between 300 and 850. When considering what is a good credit score the closer you are to 850 the better. Most lenders only offer the best deals to people with credit scores over 760.
Of course, the better the deal, the lower the interest rate, and the more money you can save.
Minimum Credit Score Required For House purchase
If you’re looking at what credit score is needed to buy a house then you need to understand that there are different criteria depending on the property you’re buying and the lender.
The minimum credit score is generally considered to be 500. However, some lenders will go below this if you have a large enough deposit or are prepared to pay very high-interest rates.
In general, the greater the risk to the lender the higher your credit score will need to have.
It is worth finding out your credit score before you apply for a mortgage. This will give you the opportunity to improve it and get a better deal on your home loan.
What factors Affect Your Credit Score?
If you’re hoping to purchase a house then you need to find a good real estate agent and discover what affects your credit score.
There are several things:
Having a long history of paying your debts on time will help to give you the best possible credit score. Even if you miss just one instalment it can have a serious effect on your credit score.
The greater the number of missed payments or defaults the worse your score will become.
Lenders are keen to make sure you will repay what you borrow. That starts with seeing if you have a history of repaying. But, they also need to consider how much credit you already have. In general, lenders like you to keep your borrowing repayments to 30% or less of your monthly income.
The closer you are to this limit the less likely it is you’ll get a good deal on credit. Your rating will start to drop.
Types of credit
Lenders are more comfortable when you have a good mix of credit. That means car finance, credit card, and a home loan; all of which are currently up to date. This helps the lender to feel confident in your financial abilities.
But, remember that, regardless of what a lender may offer you or how good your credit score is, you must feel comfortable with the amount you are borrowing and your ability to repay it.