Did you know your credit score plays a major role in determining your home loan eligibility, interest rate, and the overall cost of borrowing? If you’re a first-time buyer, you can boost your chances of getting the best loan terms by understanding how you can improve your credit score before applying for your mortgage.
Buying a home for the first time is exciting, and there’s a lot to know. One thing to know is how your credit score affects the amount you can borrow to pay for your home—or if you can borrow at all.
Understanding how your credit score affects your home loan can help you prepare financially for your home search, avoid surprises, and potentially help you save thousands of dollars over the life of your mortgage. Let’s take a closer look at how credit scores work.
What Is a Credit Score?
Your credit score is a three-digit number that reflects your history of borrowing and repayment. Credit scores range from 300 (subprime) to 850 (exceptional).
Lenders use your credit score to assess how risky it is to lend you money. The higher your score, the less risky you are. People with higher credit scores can get a lower interest rate on their mortgage, better mortgage terms, and more home loan options.
Minimum Credit Scores for Different Mortgage Types
Different types of mortgages have different credit score requirements. Here’s a look at the credit score requirements for the most popular loans we write at Lake Region Bank.
| Loan Type | Minimum Credit Score Required |
| Conventional Loan | Typically 620+ 740+ borrowers may be offered better rates |
| FHA Loan | 580 (with 3 percent down) |
| VA Loan | No minimum, but lenders often prefer 620+ |
| USDA Guaranteed Loan | 640+ , but can also work with no credit score |
Tips to Improve Your Credit Score Before Buying
Even a small difference in your credit score can affect your mortgage interest rate. Improving your score can make a big impact on your loan terms. For example, a buyer with a score of 760 may get a significantly better interest rate than a buyer with a score of 620 (the minimum required for a conventional loan). The first buyer would save tens of thousands of dollars over the life of the loan compared to the second buyer.
So, how do you improve your credit score before you start home shopping? Here are some pointers from the Lake Region Bank home lending team.
- Pay down credit card balances
- Make all payments on time
- Avoid opening new credit accounts before applying
- Check your credit report for errors and dispute inaccuracies
Your credit score is one of the most important factors in the home loan process, especially for first-time buyers. The higher your score, the more options you’ll have. Start working on your credit score early so you’ll be in the strongest position once you’re ready to buy. A trusted local lender can help you explore the best loan options based on your current credit profile and offer advice on how to improve it. Reach out to us to get your questions answered and start the home loan process.
Credit Score FAQs
What credit score do I need to buy a home?
It depends on the loan type. Conventional loans typically require 620+, FHA loans allow as low as 580 with 3.5 percent down, VA loan lenders often look for 620+, and USDA loans generally require 640.
Can I buy a home with bad credit?
Yes, but options will be limited, and interest rates may be higher.
How can I raise my credit score before applying for a mortgage?
You can raise your credit score by paying down debts, making payments on time, not opening new credit accounts, and checking your credit report for errors.
Does my credit score affect only my approval or also my interest rate?
It affects both. Your credit score influences whether you qualify for a loan and the interest rate you receive, which can greatly impact your monthly payment and total loan cost.
