Your credit score, also called your FICO score, indicates how likely you are to repay your debt. Most mortgage companies will look at this score to determine your interest rates and to see what product types are available to you. But don’t fret –– even if your credit score isn’t considered great, there are plenty of loan options available that can help you purchase a home!
If you have a credit score that is low to average (500-680), there are still loan options that can help you purchase a home. Here are some alternatives:
|Mortgage Type||Minimum Credit Score||Audience|
|FHA Loans||550 – 580||Borrowers|
|VA Loans||No minimum, but most lenders do not go below 580||Veterans and Service Members|
|USDA Loans||640||If you are wanting to buy a house in a rural area|
|Non-Qualified Mortgage Loan||500||If you don’t qualify for a conventional loan|
*varies from lender to lender.
Improving Your Credit Score
Even though mortgage loan options exist for low credit, polishing up your credit report will help you qualify for better loan terms and interest rates. Here are some tips to help you improve your credit to get the best deals.
1. Pay off Credit Card Debt
Your payment history makes up 35% of a credit score. Before buying a home, pay down your credit card as much as possible to significantly improve your credit score. When making payments in the future, make sure to pay on time with all loans and credit cards.
2. Fix Errors on Your Credit Report
Fixing errors in your credit report will also help raise your FICO score. Make sure to file a dispute if you find inaccurate information. Check for things like identity errors, balance errors, and incorrect reporting of account status.
3. Keep Old Accounts Open
If you have old credit accounts you’re not using, don’t close them down. Though the credit history for those accounts would remain on your credit report, closing credit cards while you have a balance on other cards would lower your available credit and increase your credit utilization ratio. That could knock a few points off your score.
If you’re wondering about your FICO score or how it will affect your mortgage options, reach out to one of our lenders today. We can help you check your score, and help guide you in your next steps to purchasing a home!