Credit Scores and Buying a Home: Debunking Myths

Your credit score plays a pivotal role in the homebuying process. It’s one of the key factors lenders consider when determining the types of loan options you qualify for and the terms available to you. Understanding the connection between credit scores and buying a home can help you take control of the process and make informed decisions. Unfortunately, myths about credit scores can hold some buyers back from pursuing their dream of homeownership.

The Myth: You Need Perfect Credit to Buy a Home

A common misconception is that you need a flawless credit score to qualify for a home loan. In fact, a Fannie Mae survey found that only 32% of potential homebuyers have a good understanding of what credit score lenders require. The reality? Two-thirds of buyers overestimate the minimum score needed, which may discourage them from entering the market.

The Reality: Perfect Credit Isn’t Necessary

But the truth is, when it comes to credit scores and buying a home, you don’t need perfect credit to become a homeowner. To see the average score, by loan type, for recent homebuyers check out the graph below:

There is no set cut-off score across the board. As FICO explains:

“While many lenders use credit scores like FICO Scores to help them make lending decisions, each lender has its own strategy, including the level of risk it finds acceptable. There is no single “cutoff score” used by all lenders, and there are many additional factors that lenders may use . . .”

So, even if your credit score isn’t as high as you’d like, you may still be able to get a home loan. Just know that, even though you don’t need perfect credit to buy a home, your score can have an impact on your loan options and the terms you’re able to get.

Work with a trusted lender who can walk you through what you’d qualify for.

Simple Tips To Improve Your Credit Score

If you want to open up your options a bit more after talking to a lender, here are a few tips from Experian and Freddie Mac that can help give your score a boost:

1. Pay Your Bills on Time

This includes everything from credit cards to utilities and other monthly payments. A track record of on-time payments shows lenders you’re responsible and reliable.

2. Pay Down Outstanding Debt

Reducing your overall debt not only improves your credit utilization ratio (how much credit you’re using compared to your total limit) but also makes you a lower-risk borrower in the eyes of lenders. That makes them more likely to approve a loan with better terms.

3. Hold Off on Applying for New Credit

While opening new credit accounts might seem like a quick way to boost your score, too many applications in a short period can have the opposite effect. Focus on improving your existing accounts instead.

Credit scores and buying a home go hand in hand, but don’t let misconceptions about perfect credit hold you back. You may have more options than you realize. The best step forward? Partner with a trusted lender to understand where you stand and develop a plan tailored to your financial goals. Contact me for a list of preferred lenders in the Denver area.