When purchasing a home appears on the distant horizon, one piece of advice you’ll almost always hear is, “Polish up your credit score.”

The housing crash in the late ‘00s turned the tide toward stricter lending. With it, buyers needed to have, among several factors, a score in the 700s to qualify for a conventional loan.

Even with lenders starting to loosen up, having good credit is absolutely crucial. Consider these points:

Credit Affects Whether You Qualify for a Loan

In the big picture, credit score is one factor that determines how you’ll be financed, if a lender will approve you for a mortgage at all.

Your FICO indicates how reliable you’ll be in paying back a loan, including making regular, on-time payments. These days, buyers are advised to aim for the 600s at least if they want to qualify, although the Federal Housing Authority (FHA) will offer a loan to those with a 580 score.

Credit Affects Your Rate

As another rule, the higher your credit score, the lower your rate ends up being. Better scores tell lenders you’re less of a risk, so, in turn, they’ll offer a lower interest rate. In some cases, higher FICO scores warrant a mortgage rate four percent lower.

And if your score’s under 650, be prepared to get approved – but only at a higher rate.

Credit Influences What You’ll Be Able to Afford

Both factors above lead to another conclusion: Credit ultimately determines how much you’ll be able to afford.

First, higher rates translate to a bigger monthly payment, which, ideally, should be no more than 30 percent of your monthly income. As well, principal, interest, taxes, and insurance all have to be factored in.

Second, lenders examine your financial background to determine which program best fits. The program and the amount for which a lender approves you ultimately restrict your price range.

If You or a Spouse Have Poor Credit

If you and a spouse are planning to purchase a home together and you’re planning to combine your incomes, prepare to have both of your scores evaluated.

But be aware, too: If one of you has a less-desirable score, the lender may reject your application.

No matter if you’re thinking about a house or condo, getting qualified for a mortgage is something all buyers face. Make sure your credit history is clean first, and then work with By Carrier to explore your options.

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