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Planning to buy a house? Make sure you build up your credit

Planning to buy a house? Make sure you build up your credit

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When property buyers in Illinois acquire a mortgage, the interest rate on the loan is significantly impacted by their credit score. Typically, those buying property who have a higher credit score will receive a better interest rate than those who have a lower rating. In some situations, buyers who have a poor credit score may not even be able to get a loan at all.

What lenders look at

When applying for a mortgage, lenders look for several different variables on a buyer’s credit report in addition to his or her total score. These include the length of the buyer’s total credit history, the amount of outstanding debt in relation to the amount of available debt, the pursuit of new credit and the amount of money the buyer owes.

The impact credit can have on a mortgage

Over the life of a loan, a single percentage point can add up to thousands of dollars. For example, a real estate buyer with poor credit purchases a mortgage worth $300,000. Due to his poor credit score, he is provided with a high interest rate that adds $300 to his total monthly mortgage payments. If his loan lasts for 30 years, this would add several thousand dollars to the total cost of owning his home.

Improving your score

Because credit can have a huge effect on the interest rate property buyers receive on their mortgage, home purchasers should attempt to elevate their credit score before applying for a loan. To do this, those who desire to buy a house should take the following steps:

  • Check their credit report—buyers should obtain a copy of their credit report and make sure that no errors exist that could impact their score. If mistakes are present, they should dispute them with their lender.
  • Reduce the amount of debt they owe—although it may be difficult, homebuyers should work towards minimizing their debt by figuring out exactly how much they owe, setting up a repayment plan and using cash for purchases instead of their credit cards.
  • Setup payment reminders—late payments can have a significant effect on a person’s credit score. To ensure they do not miss a payment date, homebuyers should consider enrolling in an automatic payment system or setting up calendar appointments that remind them when they need to make a credit card payment.

However, these are just a few strategies buyers can use to enhance their credit score before acquiring a mortgage. Those who are planning on buying a new home in the near future may benefit from speaking with an attorney who can provide information about how mortgages are impacted by credit.

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