What You Need to Know About Credit Scores
Dec 30, 2021

What You Need to Know About Credit Scores

Buying a House? Here’s What You Need to Know About Credit Scores.

 

Credit score worry is incredibly common among first-time home buyers. Is your score good enough to secure a loan? Can you boost your credit score before you buy a home? What’s a “good” number? In this article, we try to answer the most common questions about credit scores to help you understand what you need to do in order to secure a loan.

 

How is my credit score determined?

 

Before we dive into what lenders need, let’s talk about the basics. As in, what is your credit score made up of? There are quite a few factors that go into your credit score, including…

  • Your payment history, including late payments.
  • Current credit usage and debt.
  • The types of accounts you have.
  • Recently opened credit lines.
  • How long you’ve had your accounts open (the “age” of your accounts).

 

The good news is each of these factors allows you to improve your credit score. Avoid outstanding late payments, keep accounts open, and try to keep debt low (if possible). More on that below.

 

Why do lenders need my credit score?

 

Lenders use credit scores to assess risk when considering a loan. Based on how much debt you have, whether you’ve paid off loans consistently, and your current credit status, lenders can predict how likely you are to pay off your home loan. For this reason, your interest rate is also tied to your credit score – buyers with higher scores tend to secure lower interest rates.

 

What’s a “good” credit score?

 

First, it’s important to know mortgage lenders are required to follow rules when reviewing mortgage loan applications. There isn’t one secret number that will guarantee you a loan, nor is there a specific number needed for each type of loan. There are four main loan types – here are the minimum credit scores you need to secure each one:

  • Conventional Loan (the most common home loan) – 620
  • FHA Loan (the most inclusive loan type, but it does require a 3.5% down payment) – 580
  • VA Loan (available for active-duty service members and veterans) – 580
  • USDA Loan (government-backed mortgages for non-urban homes) – None officially, but 620 is preferred.

Each of these loans has other requirements, so you’ll need to weigh your options carefully and make sure you qualify for the type of mortgage loan you’re after.

 

How can I raise my credit score?

 

Considering how important your credit score is, it’s not always easy to find helpful information on improving your score. But that doesn’t mean it isn’t possible. Here are a few tips to raising your credit score:

  • Do not miss payments! Pay all your bills on time.
  • Your credit utilization factors into your credit score, so try to minimize your usage before buying a home. Consider temporarily increasing payments to lower this number.
  • Don’t open a new credit line at least six months before beginning the home-buying process. Opening new accounts leads to a hard inquiry on your credit report, which can impact your score.
  • Keep old accounts open until after you’ve secured a mortgage loan.

What else will lenders need to know besides my credit score?

 

In addition to your credit score, lenders will ask for additional information to determine the risk level of providing you with a mortgage loan, as well as your ability to pay back a loan. Here are a few other factors lenders will be interested in:

  • Your income and your partner’s income if you’re jointly purchasing a home.
  • Employment history.
  • Your debt-to-income ratio.
  • The amount you intend to use as a down payment.
  • Your savings funds.
  • Whether you’ve filed for bankruptcy before.

 

Your credit score allows lenders to understand your financial health. But if your score doesn’t meet the minimum to secure a mortgage loan or a lower interest rate, don’t worry. You can raise your credit score by following the tips above. Just remember to be patient – it can take six months for changes to appear on your credit report. Regularly check in on your score, pay attention to ways you can raise your score, and ask for help when needed, and you’ll be ready to take out a mortgage loan in no time.

 

Hear From Our Homeowners

Creative Homes Testimonial
Testimonial

Building a home with Creative is more than a process of building a house. Its the people you get to meet, work with and get to know along the way. And Creative knows the right people to have in the right position.

Doug Brahee
Testimonial
Creative Homes Testimonial
Testimonial

Wow! It's hard to know where to even start and I know I won't be able to list everything, but I have to try and tell you how we awesome we feel about the whole building process with Creative Homes and how much we truly love our new home. The process of building with Creative Homes was the most relaxing (sounds weird, but so true!) home building experience we have ever been through. The communication provided from the very start until the very end has been phenomenal. Not once during the whole process did we ever sit and wonder what was going on regarding our home.  I honestly wish I could name everyone behind the scenes at Creative Homes who works so hard to make customers like us have such an awesome home building experience. This company has the standards and employees that all companies should take note of and follow the example of. 

Gunderson Family
Testimonial
Creative Homes Testimonial
Testimonial

The entire time at Creative Homes has been phenomenal to work with through our building process. This is the 3rd time I have built and everything about the process has been second to none. I appreciate the entire Creative team and cannot speak highly enough of their work!!

Alicia
Testimonial
Creative Homes Testimonial
Testimonial

We really had a great home building experience with Creative. Our home was completed on schedule and they worked closely with us on every aspect of the project. Our site supervisor was incredible – he was catching things before we even noticed them and had them remedied quickly and to our standards. Overall, we would highly recommend Creative and would build with them again in the future.

Matt & Amanda
Testimonial
Creative Homes Testimonial
Testimonial
Great experience from start to finish! Derek and Jeff were awesome to work with and provided great communication, customer service and were passionate about building a high quality home we would be proud to own in the end. Third home built from the ground up and by far the best experience we had! Would recommend Creative Homes to others searching for a home builder who cares about their clients.
Lehman Family
Testimonial