What is your credit score? Are you satisfied with it? If you aren’t satisfied with your score, do you understand what can help your credit score and what can hurt it?
Last question, are you a homeowner? You’re probably wondering what all those questions are for. Well, when you analyze the average credit score of Americans, you’ll realize that homeowners have the highest scores.
In some cases, it is said that homeowners make a difference when it comes to the American credit score average. VantageScore rates that homeowners make up 70% of people with a score of 750 and above. Continue reading to learn why that is.
It’s Almost Impossible to Buy a House With Bad Credit
Unless you’re paying cash, the chances of you buying a house with bad credit are quite low. To be eligible for a mortgage, you have to meet certain criteria, including meeting the lender’s minimum credit score. The minimum credit score to get a mortgage at a conventional bank is around 620. For other lenders, you may be eligible at a lower score of around 500. All in all, the higher your credit score the better.
Like many people, you may think that lenders only want to know that you are capable of paying the mortgage. However, they also want to know that you are reliable in making payments.
As such, your credit score plays a huge role in your application as well. You may be able to show that you have the ability and the proper income stream to pay back the mortgage, but without a strong credit score, you don’t have the goodwill.
Homeowners Have a Diverse Credit Mix
As a renter, you don’t have the diversity of credit that a homeowner in the US today possesses.
A mortgage adds diversity to your credit which will, in turn, build your credit score. A diverse credit mix is quite valuable when it comes to building your score as it accounts for up to 10% of your final score.
If the credit mix doesn’t have the diversity of a mortgage to back it up, chances are your score will suffer.
Homeowners Are Usually Older
An older person will almost always have a better score. This is because they have had credit products for longer and understand how they work. Unlike younger people, they have made mistakes and rectified them over the course of time.
Their score will typically be higher because they have had enough time to build it. You can’t underestimate the power of time when it comes to building your credit score.
Homeowners Have a History of Paying Their Debts
Your credit score is usually affected by how well you handled your previous debts. You may think that debts like credit card debts don’t pay a role in your score, but they do.
For you to become a homeowner, you’ll likely take out a mortgage and to get the mortgage, you have to prove your ability to pay the debt. If you have a paper trail of paying off debt, your score will vastly improve since you can be trusted. Most homeowners needed this proof in order to buy a home in the first place.
Conclusion
You may be wondering why homeowners have good credit scores, unlike you as a renter. To gain the trust of the lenders and since mortgages are not easy to come by, they have built good credit over many years.