Things You Need to Know About Credit Scores When Buying a Home
Everybody knows something about credit scores but there are many misconceptions out there. In this blog, we are going to clear a few of those misconceptions but first let's start with what is the basic definition of a credit score and why should anybody care about their credit score?
What is a Credit Score?
According to the CFPB or the Consumer Financial Protection Bureau, a credit score predicts how likely you are to pay back a loan on time. A scoring model uses information from your credit report to create a credit score. In order to buy a home, you need a good credit score, unless you’ve got the cash. One of the other.
What credit score do you need to buy a home?
It doesn't have to be perfect credit, it doesn’t have to be great credit, and it doesn’t have to be good credit but just credit in general. That’s our starting point. If you have bad credit, we can turn that into good credit where it is good enough to buy a home but the start is to have credit.
What should I do if I don’t have a credit score?
Ultimately, you’ll want to have a credit score because that’s going to help you in life. It is possible that there are some people that are in their 20s, 30s, or older, who realize that they don’t have a credit score.
In order to start if you don’t have a credit score is to get a credit card. You're using this as a tool to build good credit. That's the key. You want it to be to build good credit, you've got to have revolving credit.
What we mean by that is your extended credit line and you can spend it as you see fit then you're held to terms to pay it back with a minimum payment, not a set payment, such as a credit card. A car loan would be an installment debt, not a revolving. A car loan will establish credit, but it's not going to necessarily build your credit.
When getting a credit card, choose wisely and find one that doesn't have high annual fees. Interest rates are going to be what interest rates are going to be, they're probably going to be in the high 20s but the goal is to not max this thing out, the goal is to get a say a $500 credit line, use it for your gas your groceries once a month.
When that bill comes due, you're not paying it off, you're paying it down to 10 bucks, an interest on that it's going to be very low. If you're paying it to zero, you're not using your extended credit so what's getting reported is that you have a credit card, and even though you've used it, you've paid it to zero.
That's what gets reported. It's not showing that you're using the credit line that's been extended. You want to show that you're using it and using it responsibly and capable of not just maxing it out not being able to pay it. That would be my advice on how to start building credit.
Can I still buy a home without a credit score?
Yes, you can still buy a home if you don’t have a credit score but people generally are going to have a credit score, it’s just going to be minimal. There are ways to buy a home without a credit score which are also called non-traditional tradelines. If you have no credit score, it takes three non-traditional tradelines which include 12 months of history with no 30-day late.
Are you thinking of buying or selling a home in the Nashville – Middle Tennessee area, call me at (615) 930-0313, schedule a call with me, or send me a message! I love helping people and using my financial and legal background to guide you in finding your dream home!