Hint: That’s a pretty decent score, and one you might be happy with.
- A minimum credit score of 620 is required to qualify for a conventional mortgage.
- The average recent first-time home buyer had a much higher credit score than that.
Most first-time home buyers are not able to buy property with cash. Instead, they rely on mortgages to finance their home purchases.
The higher your credit score at the time you apply for a mortgage, the more competitive the interest rate you are likely to get on that loan. It pays to get your score in the best possible shape once you’ve gotten serious about buying a home.
If you’re nearing this point and not sure exactly how your credit score stacks up, Fannie Mae might have some insight. In a recent Fannie Mae report, first-time home buyers were found to have an average credit score of 746. And that’s roughly the average credit score of all home buyers, not just new buyers – 754.
If your credit score is around 746, that means you’re probably in a decent position to qualify for a mortgage. Chances are you’ll also get a pretty competitive mortgage rate with a score like that.
But if your score is significantly lower, you might want to take steps to raise it before applying for a home loan. Otherwise, you could end up with a higher mortgage rate and more expensive mortgage payments to manage.
How to increase your credit score
A higher credit score sends a message to mortgage lenders that you are not a high-risk borrower. A high score indicates that you generally pay your bills on time, that you don’t overuse your available credit, and that you have a good mix of credit cards and loans.
If you think your credit score could be improved before applying for a mortgage, there are steps you can take to raise it, some of which may take longer to show results than others.
1. Pay all bills on time
Your payment history carries more weight in calculating your credit score than any other factor. Paying bills on time should help your credit score improve, but it may take a little time to see that impact.
2. Pay off some credit card debt
If you have plenty of cash and don’t need it for a down payment on a house, consider using some of it to reduce your existing credit card debt. This should lower your credit utilization ratio, which is another important factor in calculating your score. And if you manage to significantly reduce this ratio, you should see your credit score improve quite quickly.
3. Correct incorrect information on your credit report
Your credit report may contain errors that reflect unfavorably on you, such as outstanding debts that you paid off or that you never incurred in the first place. Getting these errors corrected could mean seeing your score improve in one to two months, so it’s worth reviewing your credit report and working to correct any incorrect information on it.
Your credit score may be comparable to that of recent first-time home buyers. But if your score is lower, you might want to work on improving it before applying for a mortgage. On the other hand, your credit score may be above 746. If so, you should be able to approach the mortgage application process with a lot of confidence.
A Historic Opportunity to Save Potentially Thousands of Dollars on Your Mortgage
Chances are interest rates won’t stay at multi-decade lows much longer. That’s why it’s crucial to act today, whether you want to refinance and lower your mortgage payments or are ready to pull the trigger on buying a new home.
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