A majority of people have ghosts of debts past, myself included—I’m looking at you, student loan debt. While having any kind of debt can impact your credit score, it’s how and when you pay it down that can make all the difference, especially when it comes to buying a home.
The more you know about how your credit score works, the less scary it will seem to talk about it. So, let’s delve into the details so that you don’t feel “haunted” by your credit score.
What is a good credit score?
Every homebuyer needs to know their credit score, in doing so, you can get a better idea of what kind of mortgage options are available to you. Most lenders base loan eligibility off of where your credit score falls within a range where 300 is the minimum credit score and 850 is the highest credit score.
Some mortgages offer lower credit requirements. But if borrowers want to increase their credit score, they have many ways to do so.
What credit score do you need to get a mortgage?
Your home needs are unique, and your mortgage options should be too. As you search for the right purchase mortgage, you may find that they each have their own minimum credit score requirements.
- FHA loan — Backed by the Federal Housing Administration (FHA) this loan offers flexible credit requirements depending on the amount of down payment.
- USDA loan — The USDA (U.S. Department of Agriculture) loan does not have a set credit score requirement, lenders set their own score requirements. However, if your score is lower you may be subject to a manual underwriting process. This isn’t a bad thing; the manual process will just take a bit more time.
- VA loan — Partially guaranteed by the Department of Veterans Affairs (VA), these loans are for active-duty and retired service members and qualifying spouses. The VA has no minimum credit score requirement, however they do require lenders to review a borrower’s entire loan profile. Credit stipulations may vary by lender.
How can I improve my credit score?
Since different mortgages have difference credit score requirements, there may be a time when you need to consider how to build your credit score. If you don’t already know your credit score, you can get a complete credit report from one of the three leading credit reporting agencies: Experian, Equifax, and TransUnion.
Once you have a credit report, you can review it line-by-line to find any mistakes, omissions, duplicates or “common name” errors. Should you find any questionable items, contact your credit bureau right away because you can add a 100-word commentary to the report for items in question.
Some popular ways to build your credit score include:
- Set up automatic payments or payment reminders to avoid late penalties
- Pay down or pay off any debt accounts you can
- Keep the balance on credit cards low
- Connect with a local credit counselor for assistance
Does a mortgage qualification affect credit score?
When you start your mortgage qualification* process (commonly called a mortgage pre-approval) you may wonder if it could negatively affect your credit score, especially if you are actively trying to build your credit score.
Since your lender will need access to your credit history, your mortgage qualification application can lower your credit score by a few points. But keep in mind, this reduction is only temporary and shouldn’t hinder your likelihood of getting a mortgage.
Why take the time to get qualified anyway? Here are the benefits of getting qualified for a mortgage before you go house hunting:
- Save time by only looking at homes in your price range
- Sellers look more favorably at your offer because they can expect fewer delays
- Knowing what you can afford can give you negotiating power
Now that you know more about how your credit score works with getting a mortgage, you can go into your homebuying journey with more confidence. But if you still have questions, or want to know your mortgage options, connect with your local PrimeLending loan officer today.
*All loans subject to credit approval. A qualification is not an approval of credit and does not signify that underwriting requirements have been met. Conditions and restrictions may apply.
