It’s easy to fall in love with the idea of buying a home, but if you’re going to get a mortgage (and let’s face it, most homebuyers do), you’ll likely need to improve your credit score.
Also called a FICO score, your credit score is a simplified calculation of your history of paying back debts and making regular payments on loans. If you’re borrowing money to buy a home, mortgage lenders want to know you’ll pay them back in a timely manner. Your credit score is an easy estimate of those odds.
Here’s your crash course on this all-important little number, and how to whip it into the best home-buying shape possible.
What credit score do you need to buy a house?
The Federal Housing Administration requires a minimum credit score of 580 to permit a 3.5% down payment, and major lenders often require at least 620, if not more. Some will go as low as 500, but you shouldn’t count on that.
There are three major U.S. credit bureaus (Experian, Equifax, and TransUnion), and each releases its own credit scores and reports (a more detailed history that’s used to determine your score). Their scores should be roughly equivalent, although they do pull from different sources. For example, Experian considers on-time rent payments while TransUnion has detailed information about previous employers.
To access these scores and reports, financial planner Bob Forrest of Mutual of Omaha recommends using AnnualCreditReport.com, where you can get a free copy of your report every 12 months from each credit-reporting company. It doesn’t include your credit score, though—you’ll have to go to each company for that, and pay a small fee.
Or check with your credit card company: A variety of card issuers offer free access to scores and reports, says Michael Chadwick, owner of Chadwick Financial Advisors in Unionville, CT. Once you’ve got your report, thoroughly review it page by page, particularly the “adverse accounts” section that details late payments and other slip-ups.
Best way to boost your credit for homebuyers
Some of the best ways to improve your credit score will take a bit of work, but it will be worth it in the end. To improve your credit score, first you need to establish what’s keeping it so low. Scenarios range from late payments to errors you may not even be aware of.
Credit score error disputes
A 2021 Consumer Reports study found that 34% of respondents found at least one error in their credit report. So if you spot any mistakes in your report, start by sending a dispute letter to the bureau, providing as much documentation as possible, per FTC guidelines.
You’ll also need to contact the organization that provided the bad intel, such as a bank or medical provider, and ask it to update the info with the bureau. This may take a while, and you may need documentation to make your case. But once the bad information is removed, you should see a bump in your score.
Erase one-time mistakes
So you’ve made a late payment or two—who hasn’t? Call the company that registered the late payment and ask that it be removed from your record. “If you had an oopsy and missed just a payment or two, most companies will indeed tell their reporting division to remove this from your credit report,” says Forrest. Granted, this won’t work if you have a history of late payments, but for accidents and small errors, it’s an easy way to improve your credit score.
Increase your limits
One no-brainer way to increase your credit score is to simply pay off your debt. Not an option right now? Here’s a cool loophole: Ask your credit card companies to increase your credit limit instead. This improves your debt-to-credit ratio, which compares how much you owe to how much you can borrow.
“Having $1,000 of credit card debt is bad if you have a limit of $1,500. It isn’t nearly as bad if your limit is $5,000,” Forrest says. The simple math: Although you owe the same amount, you’re using a much smaller percentage of your available credit, which shines well on your borrowing practices.
Pay on time
If you’re often late with payments, now’s the time to change. You have the power to improve your credit score yourself. Commit to always paying your bills on time; consider signing up for automatic payments so it’s guaranteed to get done.
Give yourself time
Unfortunately, negative items (such as those habitually late or nonexistent payments) can stay on your report for up to seven years. The good news? Changing your habits makes a big difference in the “payment history” segment of your report, which accounts for 35% of your score. That’s why it’s essential to start early so that you’re sitting pretty once you’re shopping for homes and find one that makes you swoon.
Credit score needed to buy a house by loan type
Looking at the five most common loans new homebuyers will tap to purchase a house, here are the necessary credit scores:
Conventional Loans Minimum Credit Score: 620
As the most commonly used type of mortgage loans, you’ll typically need a minimum credit score of 620, though some may require a score of 660 or higher and some will accept a score as low as 500. But be careful: these loans aren’t insured by a government agency like Fannie Mae and Freddie Mac.
Jumbo Loans Minimum Credit Score: 700
A jumbo loan lives up to its name, allowing lenders to supply a higher loan amount while following the same requirement of a conventional loan. But more money means requiring a higher score: 700 or higher
FHA Loans Minimum Credit Score: 500
If you’re going with an FHA loan (which is backed by the Federal Housing Administration), you’ll need at least a 500 credit score if you’re putting 10% down. But if your down payment is under 10%, your score needs to be at least 580.
VA Loans Minimum Credit Score: 620
The U.S. Department of Veterans Affair doesn’t set a minimum credit score for its loans, but most lenders usually look for a score of 620 or higher. VA loans are designed for certain members of the military, veterans, their spouses, and a few others who qualify.
USDA Loans Minimum Credit Score: 580
USDA loans are backed by the U.S. Department of Agriculture and are mainly for low- to moderate-income buyers looking to purchase a home in rural areas. Most lenders want to see a credit score somewhere between 580 and 620.
Additional edits and information provided by Dina Sartore-Bodo.
