The Truth About Credit Scores and Buying a Home

The Truth About Credit Scores and Buying a Home

Your credit score is a crucial part of the homebuying process. It helps lenders decide the loan options you qualify for and your potential terms. However, there’s a common myth about credit scores that could be unnecessarily discouraging some buyers.

The Myth: You Need To Have Perfect Credit

According to Fannie Mae, only 32% of potential homebuyers truly understand what credit score lenders require. That means two-thirds of buyers may overestimate the minimum credit score needed.

The Reality: Perfect Isn’t Necessary
The good news? You don’t need perfect credit to become a homeowner. Recent data shows the average credit score by loan type for homebuyers — giving you a better idea of what’s achievable (see graph below):

“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 where you’d like it to be, you may still qualify for a home loan. While perfect credit isn’t required, your score can influence your loan options and terms.  

Partner with a trusted lender who can guide you through your options and help you understand what you qualify for.

Simple Tips To Improve Your Credit Score

If you'd like to expand your options after consulting a lender, here are some tips from Experian and Freddie Mac to improve your score:

1. Pay Your Bills on Time

This covers credit cards, utilities, and other monthly payments. Consistently paying on time demonstrates responsibility and reliability to lenders.

2. Pay Down Outstanding Debt

Lowering your overall debt improves your credit utilization ratio and positions you as a lower-risk borrower, increasing the chances of loan approval with better terms.

3. Hold Off on Applying for New Credit

Opening multiple credit accounts quickly can lower your score; focus on improving existing accounts instead.

Bottom Line

You don’t need a perfect credit score to qualify for a home loan. The best way to understand your options is to work with a trusted lender.