Did you know only 25% of Americans have a FICO® Score between 740 and 800? There are many misconceptions about the credit score needed to buy a house. It is reported that 24% of renters believe they need a credit score of 780-800 to be considered for a mortgage. This couldn’t be further from the truth and there are many programs available with low or no credit score requirement. The Federal Housing Administration requires a FICO® score of 580. The US Department of Agriculture lenders require at least 640. Veterans Affairs loans have no credit score requirement. None of those are above 700, and the number has been dropping for the last seven years. The average FHA Purchase FICO® Score reported in January 2020 was 580!
Over 80% of Americans have a score that allows them to purchase a home. If you would still like to improve your score in order to become a homeowner, follow our tips below!
How to Improve Your Credit Score to Buy a Home:
1. Stay Up to Date with Payments (& Settle Debts)
Late payments also negatively affect your credit score. Make a financial plan to catch up and stay caught up with your payments. If you have outstanding debts that have gone into collections, they could be bringing your score down significantly. Now is the time to settle them. Call the collection agency and tell them you want to “pay to delete” the debt. This means that you pay what you owe on the account and they delete the negative item from your credit report.
2. IMPORTANT – Avoid Taking on Further Debt!
While you’re preparing to buy a home, and/or taking out a mortgage, you must avoid taking on any further debt. Taking out a car loan, for example, will negatively impact your credit score. It is important to wait until after you’ve closed on your home to consider taking on any new loans.
3. Identify and Fix Credit Report Errors
Checking your credit report for errors is a must. It is said that one in five credit reports contained errors. You should periodically review your credit report for any incorrect items. These mistakes add up and drastically impact your score if not removed. Always dispute these whenever you find inaccurate information!
For comments or inquires contact:
Alex Khodadad, Broker, CPA
1930 Contra Costa Blvd.
Pleasant Hill, CA 94523
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