Credit Matters for Homeownership

Why Credit Matters When Buying a House

Buying a house is one of
the biggest financial decisions you will ever make. It requires a lot of
planning, saving, and research. But before you start looking for your dream
home, you need to make sure your credit is in good shape. Trellis for 48 years
has supported individuals and families on the path to homeownership through
learning, lending and the building of affordable homes.  Knowing why your credit score matters and how
to improve it is one important part of that journey.

Your credit score is a
number that reflects your history of borrowing and repaying money. It shows how
responsible you are with your finances and how likely you are to pay back your
debts on time. Your credit score affects many aspects of your home buying
process, such as:

  • Your eligibility for a mortgage. Lenders use your credit score to determine if you qualify for a
    loan, how much they are willing to lend you, and what interest rate they
    will charge you. A higher credit score means you have a lower risk of
    defaulting on your loan, so you can get better terms and save money on
  • Your down payment requirement. Some loan
    programs, such as FHA loans, have lower credit score requirements than
    conventional loans, but they may require a higher down payment. A higher
    down payment means you need more cash upfront, which can be challenging
    for some buyers.
  • Your closing costs. Closing costs
    are the fees and expenses that you pay when you finalize your home
    purchase. They can include appraisal fees, title insurance, origination
    fees, and more. Some of these costs may vary depending on your credit
    score and the type of loan you choose.
  • Your homeowners insurance premium. Homeowners insurance is a policy that protects your home and
    belongings from damage or loss due to fire, theft, natural disasters, and
    other risks. Your credit score may affect how much you pay for your
    homeowners insurance, as insurers may consider you more or less likely to
    file a claim based on your credit history.

As you can see, your
credit score can have a significant impact on your home buying experience.
That’s why it’s important to check your credit report and score before you
start shopping for a house. You can get a free copy of your credit report from
each of the three major credit bureaus (Equifax, Experian, and TransUnion) once
every 12 months at []. You can also get your credit score
from various sources, such as your bank, credit card issuer, or online service.

If your credit score is
not as high as you would like it to be, don’t worry. There are steps you can
take to improve it over time, such as:

  • Paying your bills on time. Your payment
    history is the most important factor in your credit score, so make sure
    you pay all your bills by their due dates every month. If you have trouble
    remembering or managing your payments, consider setting up automatic
    payments or reminders.
  • Reducing your debt. Your credit
    utilization ratio is the percentage of your available credit that you are
    using. It’s calculated by dividing your total balances by your total
    credit limits. A lower credit utilization ratio means you are using less
    of your credit and have more room for borrowing, which can boost your
    credit score. Try to keep your credit utilization ratio below 30% by
    paying down your debt or increasing your credit limits.
  • Keeping your accounts open. The length of
    your credit history is another factor in your credit score. It shows how
    long you have been using credit and how well you have managed it over
    time. Closing an old account can shorten your credit history and lower
    your score, so keep your accounts open unless you have a good reason to
    close them.
  • Applying for new credit sparingly. Every time you apply for new credit, the lender will perform a
    hard inquiry on your credit report, which can temporarily lower your score
    by a few points. Too many hard inquiries in a short period of time can
    indicate that you are desperate for credit or taking on too much debt,
    which can hurt your score and scare off potential lenders. Only apply for
    new credit when you really need it and shop around for the best rates
    within a short time frame (usually 14 to 45 days) to minimize the impact
    of hard inquiries.
  • Disputing any errors. Sometimes,
    your credit report may contain inaccurate or outdated information that can
    negatively affect your score. For example, there may be accounts that
    don’t belong to you, payments that were reported late when they were not,
    or balances that are higher than they should be. If you find any errors on
    your credit report, you should dispute them with the credit bureau and the
    creditor as soon as possible to get them corrected or removed.

By following these tips,
you can improve your credit score and increase your chances of getting approved
for a mortgage with favorable terms. Remember that building good credit takes
time and patience, so don’t expect instant results or give up easily. With
consistent effort and discipline, you can achieve your goal of buying a house
and enjoy the benefits of homeownership.


 Learn more about credit scores and other ways to prepare for homeownership by going to Fannie Mae’s resource pages on Credit Basics and homeownership