Most first-time home buyers are aware that their credit scores play a significant role when qualifying for a mortgage. At First Fidelis LLC, we get many questions about credit scores, so we want to share our guide to credit scores when buying a home.
What a Credit Score Actually Means
Credit bureaus calculate your credit score using your credit report, which summarizes your credit accounts and details of your payment history. You have several different credit scores that use different credit scoring formulas. Your payment history, how much you own, length of credit history, credit mix, and new credit are all examples of things factored into determining your credit score.
How Your Credit Score Affects Buying a Home
A credit score indicates to a mortgage lender how likely you are to pay your mortgage consistently and on time. The appropriate credit score for buying a home will depend on the type of mortgage loan you are trying to get. Here is a general idea of the minimum credit score you need to qualify for each mortgage type:
- Conventional: 620
- FHA Loan requiring 3.5 percent down: 580
- FHA loan requiring 10 percent down: 500
- FHA loan with 0 percent down: 620
- VA loan: no minimum
Your credit score will also influence the interest rate on your loan. Therefore, having a high credit score means your interest rate will be lower.
Tips for Increasing Your Credit Score Before Buying a Home
If you have a low credit score but want to be a homebuyer, you aren’t out of luck. There are things that you can do to increase your credit score. Although you may need to push your timeline out, you can create a plan to pump up your credit score to qualify for a home loan.
1. Check Your Credit Reports for Errors
If you are planning to purchase a home within the year, we recommend checking your credit report periodically. Doing so will allow you to catch and fix any mistakes, such as accounts you don’t recognize, accounts listed twice, and other incorrect information that reflects poorly on you as a borrower. You can then report any errors or outdated information and dispute these issues to raise your credit score.
2. Pay Off Debt
While this may seem obvious, it is still important to mention. However, you should be strategic in how you pay off debt. Certain debt like student loans will not necessarily hurt your credit score if you are making all payments on time.
However, if you have a lot of credit card debt, you will want to start making large payments to decrease the amount you owe. For some people, this means going on a strict budget for several months to manage debt.
3. Pay Your Bills on Time
Late payments can be detrimental to your credit score. This includes not only your credit card bills and student loans but also cell phone payments, utilities, rent, and more. Over time, paying your bills when they are due will reflect positively on your credit score.
4. Be Careful of Scams
There are scam artists out there who will claim to be able to remove negative information from your credit report. While this information may hurt your credit score, accurate and current information cannot be removed from your credit report, even if it hurts your credit score. There are no shortcuts or quick fixes to increasing your credit score, so be cautious of anyone who claims they can do this for you.
At First Fidelis LLC, we help home buyers at every stage qualify for a mortgage. If you are interested in buying a home in Kansas City, call us today at 913-205-9978 to learn how to get pre-approved.