Everyone wants to live a stress-free life – one of the ways is to own your dream home. But, what about your credit score? This article explores the question and can help you decide whether it’s worth it for you to get a house even if you have a low-credit score.
What is a credit score and what does it mean?
A credit score is a numerical representation of how much risk the lender believes you pose to repaying a loan. Essentially, it’s a number between 300 and 850, with 300 being considered bad credit or no credit history and 850 being excellent or perfect. If your score is below 600, you will have to pay higher interest rates when buying or refinancing a home.
This is a question which many people ask themselves. You may be frustrated when your credit card debt piles up and you have difficultly making ends meet. However, it’s important to understand what a credit score really means before you decide to panic. Your credit score is essentially a number between 350 and 850 which is determined by an algorithm developed by the Fair Isaac Corporation. One of the factors that helps build this algorithm are your payments on time – whether or not you pay bills on time impacts your score in a significant way.
The low credit score dilemma: Pros and Cons
You may have heard it before, but low credit score is a bit of a bummer. With a low credit score you may be denied for mortgages, car loans, private loans or any type of financial aid. However, the pros and cons of having low credit score are not that straightforward and the decision still comes down to your own personal circumstances.
It’s a common misconception that low credit scores are the only way you can afford to purchase real estate. This is not true, and an individual with a low credit score may still be able to qualify for a mortgage. A low credit score also does not mean that you’re stuck in financial hardship. You could save up for the down payment and handle your finances according to what you have budgeted.
How to improve your credit score
It takes time and effort to improve your credit score. You can take many different paths, but the most important is not only to pay off your debt but also be on time for future payments. Establishing a budget will create a plan that makes it easier to get ahead with your debt.
There are a number of things you can do to improve your credit score and these include: pay your bills on time, try not to use any accounts that you don’t need, keep your credit utilization (how much of your available credit is being used) as low as possible, and don’t take out any additional loans, including mortgages.
Things you should know about your credit score
The truth is it is possible to have a mortgage or other loan approved even if your credit score isn’t perfect. The key to getting approved for a loan that you can afford is being able to prove that you have the income and assets to make the monthly payments.
Your credit score is a number that tells lenders how risky you are as a borrower. Your credit score takes into consideration factors like your payment history, length of time on account, and the debt to income ratio. If you have a low credit score, it can make paying for things like mortgages, cars loans or even student loans difficult. There are steps that you can take to help improve your credit score.
Keeping your credit in check
A simple thing you can do to preserve your good credit score and keep it from going down is to never use more than 35% of your total available credit limit. Set up a monthly payment plan with your lender so you are always able to make the minimum required payments on time and don’t run into problems later.
If you are trying to buy a home and have a low credit score, you should make sure you are aware of your finances. If you want to get approved for a mortgage loan, it is important to always stay on top of your payments and not carry a balance from one bill to the next.
It’s true that the home is one of the primary investments we make in our lifetime and it makes sense to give yourself a good rate of return. But if you have low credit score, it’s not always going to be easy but there are many options available. Credit scores can improve over time and there are many things you can do to build up your credit score such as paying off your debt, having an emergency fund, starting a savings account and more.
It’s true that home prices have been steadily rising, but it’s important to remember that you don’t need to buy a house if you don’t want to. There are other options for building your down payments and are not spending much money.