Buying a house is a big financial investment and responsibility. Your credit score is one thing lenders will look at to determine your financial responsibility; how you use credit and how you manage debt. Unless you can pay cash for your new home, you will need to borrow money in the form of a mortgage loan. The type of loan and interest rate you receive for your mortgage loan depends largely on your credit score and credit history report. Here is some information around credit score and some credit repair tips to help explain how your credit score plays a role in the home buying process, and what is a good credit score to buy a house in 2019.
What is a Credit Score?
Your credit score is a number that represents your credit history and helps a lender or bank calculate the level of “risk” they take on by lending you money to purchase a house. The “risk” is the likelihood of you paying the money back.
The FICO score rating system is the most commonly used credit score rating system. It’s the first thing a mortgage lender will look at when you apply for a mortgage. Your FICO score can range from 300-850, and 850 is the best possible score.
Your credit score will continue to change over time as you complete new financial transactions. The changes can go both ways. Good financial habits help keep your credit score strong. There are also some practices that can hurt your credit score.
Good Financial Disciplines that Help Your Credit Score
- Pay bills on time
- No loan defaults (failure to pay back a loan)
- Low credit utilization ratio (Your credit utilization ratio is the percentage of credit you are using of the total available credit limit on your credit card accounts)
Things that Damage Your Credit Score
- Missed loan and credit card payments, especially multiple missed payments
- Declared bankruptcy
- Carry excessive debt (examples might be large unpaid loans or credit card balances)
How to Check Credit Score for FREE
People are increasingly aware of how important their credit score is for their financial well-being. That’s why people ask what is a good credit score, so they know how they rank. There are many companies who charge a fee to provide you with this information. However to be more competitive, the recent trend for many banks and credit card companies is to offer a credit score service for free to their customers. Sometimes these institutions will include your credit score on your statements, or it may be included on your account when you are logged into your online profile. Check with your financial institution to see if they are doing this or will do it for you.
FREE Credit History Report (Not Credit Score)
As an American, every 12 months you can get one free credit history report from each of the three major credit bureaus: Equifax, Experian and TransUnion. Your credit reports DO NOT contain your credit score. However, your credit history reports offer a detailed look at your overall credit history. Your credit history is what builds your credit score, so these historical reports give you the opportunity to review everything used to calculate your credit score. It is a starting point to clear up any inaccuracies on your credit history report. Getting rid of inaccurate information is one way to potentially raise your credit score. The easiest way to get your free credit history report is to visit AnnualCreditReport.com. It is the official credit history report website featured by the U.S. federal government, Consumer Financial Protection Bureau.
What is a Good Credit Score to Buy a House?
In general, a good credit score to buy a house (minimum to qualify) is 620 or higher. If you have a credit score of at least 620, you qualify for nearly all of the most common mortgage loan types. Now you know what is a good credit score to buy a house, but how do the minimum qualifications differ for each loan type? Here are the typical minimum credit scores for each type of mortgage loan:
- Conventional Loan: 620 or higher
- FHA 203K Loan: 620 or higher
- VA Loan: 620 or higher (some lenders require 580)
- USDA Loan: 640 or higher
- FHA Loan: 580 or higher (credit scores of 500-579 are possible but unlikely)
It’s important to note the credit score standards listed above are generally considered the minimum for securing a home loan. The better your credit score, the better interest rate you will receive on your mortgage, saving you money in the long run. Here is the general impact of credit scores on mortgage interest rates:
But lenders don’t make decisions based on your credit score alone. In reviewing your mortgage application, they’ll also consider your income, debt, assets, employment and your ability to pay a down payment. Again, mortgage lenders are looking at the big picture, so it’s never about just one factor.
If you’re not sure you have the credit score needed to buy a house or have questions about what lenders are looking for, Homes for Heroes can help. When you register online, you’ll be automatically matched with a real estate and mortgage specialist in your area. Our mortgage specialists are experts in helping people make sense of their financial history and can work with you to find the loan option that’s right for you. Our specialists can be your dedicated team of professionals throughout the home buying process. Heroes like you have saved an average of $2,400 on a new home by working with our specialists.
Top 5 Credit Repair Tips
The truth is, unless you’re sitting at perfect credit score of 850, everyone can use these credit repair tips. Unfortunately, there’s no magic wand you can wave and instantly improve your credit score. But some of these credit repair tips are simple steps you can take to repair your credit over time. Some have almost an immediate impact, while others may take years to significantly raise your credit score. The important thing is all of these credit repair tips will help you build the type of credit history mortgage lenders like to see. Here are the top five credit repair tips:
- Remove any errors or inaccuracies from your credit history report. Get your report: AnnualCreditReport.com
- Pay all of your bills on time (early is better)
- Keep your credit card debt under 30 percent of your available credit limit
- Only open a new line of credit if you intend to use it over the long-term
- Don’t close existing lines of credit, even if you don’t use them
Recommended Credit Repair Service
If your credit score is 580 or less, we want to help you get your score up. Your credit score is used in qualifying for many things, not just getting a mortgage and buying a home. To assist in repairing your credit score, we recommend using Credit Law Center, one of Homes for Heroes national affiliate credit repair service specialists. They provide quality service to heroes like you, and offer a 40 percent discount to say thank you for your service.
Again, your credit score is only one piece of the home loan pie. But, it’s a big piece. Hopefully this article helped you learn what is a good credit score to buy a house in 2019, and if needed, provided some credit repair tips and resources to improve your score.
Now, that you know everything about your credit score to buy a house you need to ask yourself, “How much house can I afford?”
Or maybe you’re ready to begin the home buying process? Register with Homes for Heroes and our mortgage and real estate specialists will answer your questions and save you money on your next home purchase.