When you’re considering buying a home, your credit score is a crucial part of the equation. It’s like your financial report card that lenders review to determine if you qualify and which mortgage options are best suited for you. As the Mortgage Report puts it:
“Good credit scores communicate to lenders that you have a track record for properly managing your debts. For this reason, the higher your score, the better your chances of qualifying for a mortgage.”
The challenge is that most buyers tend to overestimate the minimum credit score needed to purchase a home. A report from Fannie Mae reveals that only 32% of consumers have an accurate understanding of what lenders require, meaning nearly 2 out of 3 people don’t.
To give you a rough idea, here’s a general guideline. According to Experian:
“The minimum credit score needed to buy a house can range from 500 to 700, but will ultimately depend on the type of mortgage loan you’re applying for and your lender. Most lenders require a minimum credit score of 620 to buy a house with a conventional mortgage.”
In short, it varies. So, even if your credit isn’t perfect, you still have options. FICO explains:
“While many lenders use credit scores like FICO Scores to help them make lending decisions, each lender has its own strategy, including the level of risk it finds acceptable. There is no single “cutoff score” used by all lenders, and there are many additional factors that lenders may use . . .”
If your credit score could use a little improvement, don’t worry—Experian suggests a few simple steps you can take to give it a boost, including:
1. Pay Your Bills on Time
Lenders want to see that you consistently pay your bills on time, whether it’s credit cards, utilities, or cell phone bills. Making regular, on-time payments demonstrates that you’re a responsible borrower.
2. Pay Off Outstanding Debt
Paying down your debt can reduce your overall financial risk in the eyes of lenders. It also improves your credit utilization ratio—the amount of credit you’re using compared to your total limit. A lower ratio signals greater reliability to lenders.
3. Don’t Apply for Too Much Credit
Although it might be tempting to open more credit cards to boost your score, it’s better to hold off. Multiple new credit applications can result in hard inquiries on your report, which can temporarily lower your score.
Bottom Line
Your credit score is essential when buying a home. Even if your score isn’t perfect, there are still paths to homeownership.
Partnering with a trusted lender is the best way to understand how your credit score could impact your home loan options.
