Why Does Your Credit Score Matter?
Lenders use your credit score to determine how risky it is to lend you money. A higher score shows you’ve managed debt responsibly, while a lower score could make it harder to get a loan.
What Credit Score Do You Need to Buy a Home?
While credit score requirements vary by lender and loan type, here are some general guidelines:
Conventional Loan: Preferable minimum credit score of 620, but a higher score (700+) usually gets better rates.
FHA Loan: Allows scores as low as 500 with a 10% down payment or 580 with a 3.5% down payment.
VA Loan: No official minimum, but most lenders prefer at least 620.
USDA Loan: Typically requires 640 or higher.
However, please be aware that these generalities will not make or break your chance of approval. If your credit score is 600 and you are trying for a conventional loan, your 600 score does not automatically disqualify you. There are clients who have gotten approved with a lower score than what was stated above. There are many factors that play into your approval and rate. The only way to know for sure is to try and apply.
How Your Credit Score Is Used
You may already be aware that lenders will pull your credit report from the three nationwide credit bureaus. Why three? To find your middle score. Some people may tell you that they take the average of the three scores, that is incorrect. Typically, what happens is that they toss out the lowest and highest score and keep what is left, which is the middle score. For example, if your three scores were 600, 620, and 680. The 600 and 680 scores will be eliminated and they will use the 620 score.
What if you have a co-borrower? Will the lender use the higher credit score? Not necessarily. In most cases, they’ll use the middle credit score of the applicant with the highest income. But what if both applicants earn about the same? Then, lenders typically use the lower of the two credit scores.
Ways to Improve Your Credit Score Before Buying a Home
If your credit score isn’t where you want it to be, don’t worry—there are ways to improve it:
Pay Bills on Time – Payment history makes up 35% of your credit score, so try not to miss a due date.
Lower Your Credit Utilization – Keep your credit card balances below 30% of your limit.
Avoid Opening New Credit Accounts – New credit inquiries can temporarily lower your score.
Check Your Credit Report for Errors – Mistakes on your report can drag your score down. Get a free credit report at AnnualCreditReport.com and dispute any errors.
Reduce Your Debt – Paying down existing loans can help boost your score.
Final Thoughts
Your credit score is one of the most important factors in buying a home. If you manage your finances wisely, you’ll look less risky to lenders. If you’re planning to buy, start working on your credit early so you can get the best shot at getting your loan approved.
Need help figuring out where your credit stands? Let’s chat and get you on the path to homeownership!
