This post is part of our women homebuyer series
Having an established credit history plays an essential role in the home buying process. It’s never too soon to start building good credit. This is especially important for single women who tend to have lower credit scores that affect their buying power.
Understanding credit is critical for single women buying homes
After reviewing credit and mortgage data over a 10-year period, the Urban Institute found that single women buyers had weaker credit characteristics than single men, including lower incomes and higher debt-to-income ratios. The study also revealed that single women buyers had credit scores that were 7 to 14 points lower than couples who were buying a home.
Differences like these may seem small, but a 10-point bump in your score can take you from having fair credit to good in the eyes of a lender. Usually, a credit score in the 700s will get you access to the best mortgage rates, so it’s helpful to know how your score is calculated and how to improve it.
Learn the basics of credit scores before buying
Credit scores range from 200 to 850, with scores above 620 considered ideal for obtaining a mortgage. The following factors affect your score¹:
- Your payment history. Did you pay your credit card bills on time? Bankruptcy filing, liens, and collection activity also affect your history.
- How much you owe and where. If you owe a great deal of money on numerous accounts, it can indicate that you are overextended. However, spreading debt among several accounts can help you avoid approaching the maximum on any individual credit line.
- The length of your credit history. In general, the longer an account has been open, the better.
- How much new credit you have. New credit—whether in the form of installment plans or new credit cards—is considered more risky, even if you pay down the debt promptly.
- The types of credit you use. Generally, it’s desirable to have more than one type of credit—such as installment loans, credit cards, and a mortgage.
We recommend reading “What’s a Credit Score and How Is it Calculated?” by Ellevest to learn even more.
Don’t wait to improve your credit
Start by diversifying how you pay for things – don’t pay for everything with cash. Pay your bills on time, limit your debt, reduce the number of credit cards you have, and use them responsibly. Your goal is to show that you are financially responsible and “a good credit risk.”
It’s also important to review your credit report. A credit report is a record of past and current debt that states when, how, and if you paid. Make sure that the information contained in your credit report is accurate. By reviewing your credit report now, you’ll have the opportunity to correct any errors. Don’t wait until you’ve found a home to do this. Do it now.
Why is this all so important? Your credit history is one of the documents that give the mortgage lender confidence in you. The better your credit history, the better your credit score. And the higher your credit score, the more likely your lender will offer you more mortgage options with better terms. Even a quarter-percent lower rate can save you thousands of dollars over the life of a loan.
1 – “What to Know About Credit Scores,” National Association of Realtors