November 5th, 2011
How Do I Build My Credit Score to Buy a House?
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Whether you want to buy a house, a house of pancakes, or a shrine dedicated to House of Pain’s 1992 hit “Jump Around,” good credit will get you the loan you need at the lowest interest rate possible.
But even if you have a bad credit score from unpaid hospital bills after an unfortunate jumping around-based injury, there are still lots of things you can do to improve your score.
1. Find out your free credit score
You’ll need a score of 660 or higher in order to qualify for most mortgages, but shoot for a credit score of 720 or above to get the best interest rates, which are 1-2 percentage points lower. A few percentage points may not seem significant, but they translate into thousands of dollars difference on your loan.
If you had a $300,000 mortgage for 30 years, the difference in rates could add up to $100,000 in interest. That’s enough for a delicious pancake breakfast out every day for 54 years.
2. Check your free credit report card
Pay close attention to your credit card utilization and payment history, which each account for a large portion of your credit score. Your derogatory marks is also worth your time, since an account in collections will really ____ (fry your bacon, burn your waffle, scramble your eggs… pick your breakfast metaphor of choice).
3. Fix it!
If you have a large amount of debt, make an effort to pay it off. Decreasing your credit card utilization by paying down credit charges is a great way to help improve your credit score.
If you have any derogatory marks that you don’t recognize, pull your full, free credit report from Annual Credit Report and investigate. If you find something that’s not yours, get it removed. Like House of Pain probably would’ve said:
“Word to your moms
I came to drop bombs
… and improve my credit score so I could get approved for a mortgage.”
4. Wait for it…
Your credit won’t be fixed over night, but by taking a proactive approach to fixing your credit, you can expect to see improvements in six to twelve months. In the meantime, hold off on new credit cards or loans, since the hard inquiries that come with that will ding your credit score.
You can also spend the time researching what kind of mortgage you want. Credit karma has rates for different mortgages and a mortgage affordability calculator to see how much you can afford.
Yes, it’s frustrating to wait for your house of pain, house of pancakes, or house of house, but if you can hold off until your score is higher, you will save tens of thousands of dollars with a lower interest rate. And that’s something worth jumping around for.
Let’s roll out Edgar, I smell waffles.
Ezra Fox, Credit Karma Contributor, Breakfast Enthusiast