Your credit score is a crucial factor in the homebuying process. Lenders use it to assess which loan options you qualify for and the terms they’ll offer. However, there’s a common misconception about credit scores that might be stopping some buyers from moving forward.
The Myth: You Need To Have Perfect Credit
Fannie Mae reports that just 32% of potential homebuyers have a clear understanding of the credit score lenders actually require. This means that nearly two-thirds of buyers are unsure of what lenders are looking for, and many tend to overestimate the minimum credit score needed.
The Reality: Perfect Isn’t Necessary
The truth is, you don’t need perfect credit to buy a home. To get an idea of the average credit score for recent homebuyers based on loan type, take a look at 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 . . .”
Even if your credit score isn’t as high as you’d like, you might still be eligible for a home loan. While perfect credit isn’t required to buy a home, your score can influence the loan options available to you and the terms you’ll receive.
Work with a trusted lender who can walk you through what you’d qualify for.
Simple Tips To Improve Your Credit Score
If you’re looking to expand your options after speaking with a lender, here are a few tips from Experian and Freddie Mac that could help improve your credit score:
1. Pay Your Bills on Time
This covers everything from credit cards to utilities and other monthly bills. A history of on-time payments demonstrates to lenders that you’re responsible and dependable.
2. Pay Down Outstanding Debt
Paying down your overall debt not only helps improve your credit utilization ratio (the amount of credit you’re using compared to your total limit) but also makes you a lower-risk borrower in the eyes of lenders, increasing the chances of getting approved for a loan with better terms.