Have we all been reduced to numbers in modern society? Maybe. Social security numbers, credit card numbers, driver license digits, phone numbers and credit scores. I'm sure there are other ways to identify us, too. But all of those numbers are enough to tell me that we're all a series of digits. It's the same for the first time home buyer. You're a number in a database for your real estate agent. You're a credit score to the banks. You're a phone number.
Frankly, it's not all bad. Your phone number is important so your Realtor® can call you with your dream home listing. Your credit score is important to lenders - it's one way to predict how risky of a borrower you may be. So let's take a look at credit scores for the first time home buyer.
Most lenders in today's housing market are looking for a credit score in the 640 range. This is a bit higher than the scores from before the housing market meltdown, and it's because one of the contributing factors to the downturn was too many lenders giving too much money (credit) to people who realistically could not afford the bills. While a lower credit score is not directly tied to whether you can pay your bills, it's certainly tied to whether you're paying the lines of credit you have.
If your credit score is in the lower 600 range, there's hope to improve it in a relatively short period of time. Learn some of the mistakes other first time home buyers have made and avoid them. Improve your credit with a few easy steps like keeping your balances low and paying your bills on time, all the time.
If you have no credit (or very little) established as a first time home buyer, it's probably because you don't have many lines of credit. That's a good thing - it may also mean you don't have much debt. Understand that you don't need debt to have credit. You can open a secured credit card, by something small each month (like a tank of gas) and pay it off. Do this for 12 months and you'll have credit established.
You may need to be patient when establishing or improving credit. There are no magic tricks - and anyone who tells you it's super easy and they have quick-fixes isn't being honest (with you or your potential lender). Credit takes time and effort. But it doesn't have to take years. Plus you may be surprised at how good your credit score is if you're paying your bills on time and maintaining a good financial background. Talking to a mortgage consultant about your credit report is a good idea if you're considering the first time home buyer journey.
Learn more about credit scores and how to get yours ready for buying a home with "The Road to Mortgage-Ready Credit." The free guide offers advice on improving and maintaining good credit so you can become a first time home buyer.