At the beginning of any new year, the subject of homeownership often comes up. And after a year of remaining largely inside, you might even more inclined to take the plunge. And with interest rates at historic lows, you might be able to score great terms.
There are a lot of things to consider before you jump into the homeownership pool, but one thing you definitely want is a good credit score.
Check out all the answers from our credit card experts.
Ask Steve a question.
What credit score is needed to buy a house?
In general terms, the bare minimum score required to get a mortgage is 500. But 500 is not a good score and often points to underlying problems in a personâs financial past. It could also be that a 500 score may simply be the result of a very thin file. While a loan might be available with a 500 credit score and at least 10% down, I suggest waiting until you have at least a 620 FICO score before attempting to buy a home.
See related:Â Can you get approved for a home loan with a credit score?
Scores of 620 to 640 are generally the accepted âminimumâ score required for most types of loans. But, the lower the score, the worse the terms you will qualify for, and scores under 640 are not going to get you the best terms. This is true for any financial product, but especially mortgages.
Can you pay your mortgage with a credit card?
What credit scores do mortgage lenders use?
FICO scores arenât the only credit scores, but they are the most common. And, theyâre what most mortgage lenders will use to evaluate applications. But remember that FICO offers scores, depending on what lenders need. So the FICO score a credit card issuer uses will be different from the one a mortgage lender uses.
How to manage your credit when applying for a mortgage
I always recommend people give themselves six months to a year to get their credit in its best shape before shopping for a mortgage.
Check your creditÂ
Pull your credit reports from all three bureaus at AnnualCreditReport.com. Right now, you can access a free credit report from each bureau weekly. After April 2021, you will be able to access these free reports once a year. Â Look over each report carefully and identify any errors or problems you see.
Correct any errors
If there are errors, work with the bureau to have them corrected. This may take weeks or months, or even longer in the case of identity theft.
Fix any problems
If you see any derogatory marks, you will need to correct them to get the best terms. Any past due items or items you may have in collections will pull your score down and could result in a much higher interest rate or even an outright denial. Most derogatory marks stay on your credit for seven years, but they will have less of an impact on your score over time â assuming you make payments on time and keep any bills out of collections.
Keep your debt low
If youâre hoping to get a mortgage soon, youâll want to keep your debt as low as possible and pay off any existing balances because credit utilization accounts for 30% of your credit score.
Try not to open or close any accounts
Both opening and closing credit card accounts can lower your score. Usually, itâs only temporary, but when youâre looking for a mortgage, you want your score to be as good as possible. So unless you have a good reason to open or close an account, itâs best to wait.
Buying a house is one of the most important decisions you will make. Putting your best credit foot forward is vital to securing the best terms, which will likely be with you for years to come.
Remember to keep track of your score!
See related:Â Building a mortgage-worthy credit profile