Buying a home isn’t just about saving for a down payment; it’s also about making sure your finances are in good shape, and that starts with your credit score.
Your credit score is one of the key factors lenders use to decide whether you qualify for a mortgage and what your interest rate will be. The higher your score, the better your loan terms could be, which means saving thousands of dollars over the life of your mortgage.
Here’s what you need to know:
- What makes up your credit score?
- Payment history (35%): Have you paid bills on time?
- Credit utilization (30%): How much of your available credit are you using?
- Length of credit history (15%): How long you’ve had accounts open.
- Credit mix (10%): A healthy mix of credit cards, car loans, etc.
- New credit (10%): Recent applications for credit.
- What score do you need to buy a home?
Most lenders look for a score of at least 620 for conventional loans, though FHA loans may be available with scores starting at 580. The higher your score, the more options and better interest rates you’ll have. - How to improve your score before buying:
- Pay all bills on time.
- Keep credit card balances low (ideally under 30% of your limit).
- Avoid opening new accounts right before applying for a mortgage.
- Check your credit report for errors and dispute them if needed.
The bottom line? Don’t let your credit score hold you back from homeownership. With a little preparation, you can put yourself in the best position possible when it’s time to apply for a loan.
