Your credit score is an important part of the homebuying process. It’s one of the key factors that lenders use to determine your eligible loan options and what your terms might be. But what is the truth about credit scores that may be holding some buyers back?
Is it a Myth that You Need To Have Perfect Credit?
According to Fannie Mae, only 32% of potential homebuyers have a good idea of what credit score lenders actually require.
That means two-thirds of buyers don’t actually know what lenders are looking for – and most overestimate the minimum credit score needed.
Here's The Reality: Perfect Isn’t Necessary
But the truth is, you don’t need perfect credit to become a homeowner. To see the average score, by loan type, for recent homebuyers check out the graph below:
There is no set cut-off score across the board. As 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 . . .”
Keep in mind that even if your credit score isn’t as high as you’d like, you may still qualify for a home loan. Just be aware that, even though you don’t need perfect credit to buy a home, your credit score can still have an impact on the potential loan choices and the terms you’re be eligible for.
Here Are 3 Simple Tips To Help Improve Your Credit Score
If you want to position yourself with the best options after talking to a lender, here are a few tips from Experian and Freddie Mac that can help boost your credit:
1. Always Pay Your Bills on Time
Everything from credit cards to utilities and other monthly payments, a strong track record of on-time payments shows lenders you’re responsible and reliable. This helps make you their ideal borrower.
2. Reduce Your Outstanding Debt
Reducing your overall debt not only improves your credit utilization ratio (how much credit you’re using compared to your total limit) but also makes you a lower-risk borrower in the eyes of lenders. Your lower-risk makes them more likely to approve you for a loan with better terms.
3. Resist Applying for New Credit
While opening new credit accounts might seem like a quick way to boost your score, too many applications in a short period can have the opposite effect. Focus on improving your existing accounts instead.
Bottom Line
Your credit score doesn’t have to be perfect to qualify for a home loan. The best way to know where you stand? Work with a trusted lender to explore your options. Contact me today for a list of trusted lenders who can walk you through what you’d qualify for.