Your credit score plays a big role in the homebuying process. It’s one of the key factors lenders look at to determine which loan options you qualify for and what your terms might be. But there’s a myth about credit scores that may be holding some buyers back.
The Myth: You Need to Have a 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.
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. There are many factors that lenders may use.
So, even if your credit score isn’t as high as you’d like, you may still be able to get a home loan. Just know that your score can have an impact on your loan options and the terms you are able to get. Work with a trusted lender who can walk you through what you’d qualify for.
Simple Tips to Improve Your Credit Score
If you want to open up your options a bit more after talking to a lender, here are a few tips that can help give your score a boost.
- Pay Your Bills on Time This includes everything from credit cards to utilities and other monthly payments.
- Pay Down Outstanding Debt Reducing your overall debt not only improves your credit utilization ratio but also makes you a lower risk borrower.
- Hold Off on Applying for New Credit Too many applications in a short period can have the opposite effect. Focus on improving your existing accounts instead.