Your credit score is one of the most important numbers in your homebuying journey. It affects whether you get approved, what interest rate you receive, and how much your mortgage costs over time. Here is what you need to know.
What Is a Credit Score?
A credit score is a three-digit number, typically between 300 and 850, that summarizes your credit history. The most widely used scoring model is FICO, though lenders may also use VantageScore. Higher scores signal lower risk to lenders and result in better loan terms.
What Score Do You Need to Buy a Home?
- 500-579: FHA loan possible with 10% down
- 580-619: FHA loan with 3.5% down; limited conventional options
- 620-659: Conventional loan access begins; rates are higher
- 660-699: Good access to most programs; rates improve meaningfully
- 700+: Strong rates; best conventional terms
- 740+: Best available rates on most loan programs
What Goes Into Your Score?
FICO scores are calculated from five factors:
- Payment history (35%): Do you pay on time? Late payments hurt significantly.
- Amounts owed (30%): How much of your available credit are you using? Keeping utilization below 30% is ideal.
- Length of credit history (15%): Older accounts help. Avoid closing old cards.
- New credit (10%): Multiple new applications in a short period can lower your score.
- Credit mix (10%): Having a variety of credit types (credit cards, installment loans) helps marginally.
How to Check Your Credit Score for Free
You are entitled to one free credit report per year from each of the three major bureaus, Equifax, Experian, and TransUnion, at AnnualCreditReport.com. Many credit card companies and banks now also provide free score monitoring. Check all three bureaus, as they may show different information.
How to Improve Your Score Before Applying
- Pay every bill on time, set up autopay if needed
- Pay down credit card balances to below 30% of each card's limit
- Do not close old credit card accounts
- Avoid opening new credit accounts in the 6-12 months before applying
- Dispute any errors on your credit report, they are more common than you think
How Long Does It Take to Improve?
It depends on what is dragging your score down. Paying down utilization can improve your score within one to two billing cycles. Late payment history takes longer. Seven years for a missed payment to fall off entirely, but its impact diminishes over time. With consistent on-time payments and low utilization, most people can make meaningful score improvements within six to twelve months.
Should You Wait to Buy Until Your Score Improves?
Not always. Run the numbers with a lender at your current score, then run them again at a projected improved score. Sometimes the difference in rate is smaller than expected, and waiting costs you more in rent than you save in mortgage interest. Other times the improvement is significant enough to justify a few more months of focused credit work. Know your numbers before deciding.
Ready to take the next step?
Dream Home Fund provides down payment assistance to help families like yours achieve homeownership. Get in touch today.
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