A good credit history is needed to buy a home, but what constitutes a “good” credit score varies by lender and loan type. For example, to qualify for an FHA loan with a 3.5% down payment, you need a FICO score of 580 or higher. Conventional loans backed by Freddie Mae or Freddie Mac require a minimum credit score of 620.
With that in mind, it is important to monitor your credit score at least annually. If you have seen your score drop since you last ran your credit report, here are some possible reasons for the change:
- Using too much of your available credit. You shouldn’t use more than one-third of your available credit. This can also become a problem if any of your creditors reduce your credit line, throwing the total balance versus total available credit ratio out of balance.
- Missing payments
- Accounts in collection, tax liens and bankruptcies will all lower your credit score.
- Average length of time with open credit lines. The longer, the better.
- Limited types of credit – a mix of different credit types is better than just credit card accounts, for example.
- Too many credit inquiries for credit cards and loans
- Inaccurate information on your credit report
Correcting these problems can take time and a concerted effort on your part to reverse the trend and boost your credit score, but it is possible. Talk to your mortgage lender for advice on what your credit score is, what it needs to be and how to improve it if you are falling short.