Buying a new home is an exciting time in homeowner’s life, the depressing time is when they don’t qualify for an FHA loan or any other home loan program because their credit is too low. However, there are steps a borrower can take to increase their credit score and get approved for the home of their dreams.
When applying for an FHA home loan it’s important to know all the qualifications requested, one of the commonly asked questions is, “Is My Credit Score High Enough to Qualify?” and the answer really depends on your lender. Your lender will take your credit score and history and make the decision as to whether or not you may default on your mortgage loan. You’re the risk to the lender, a higher credit score will most likely get approved and faster. Most lenders require you to have at least a 620 credit score to be able to qualify and that might include having to pay other fee’s to ensure the lender you won’t default, such as you might end up paying a high-interest rate.
Your credit score history shows lenders your credit worthiness and patterns. You lender is most interested in the last two years specifically. The older the credit the less it matters to your lender. Lenders will look at the last two years of your credit through the three major credit bureaus, Equifax, Experian and the TransUnion. All of these bureaus use something called a FICO Score. Your lender will look most likely ignore your highest and lowest scores and will use the middle score to determine whether or not you qualify for an FHA home loan.
The main categories that will have the most effect on your credit score are payment history, account balances, credit length, type of credit, and hard inquiries. Each of these categories plays a significant role in your credit history. The payment history and account balance alone makes up the majority of your overall score. The length of your credit will show lenders how long you have been using your credit. The type of credit refers to loans and credit cards and inquiries show everything that has requested access to your credit score. Hard inquiries play a pretty significant role on your credit score as they can bring it down quite low with too many inquiries. Try not to run your credit unless you really have to.
First, you want to dispute any misinformation you find in your credit report. You can file a dispute with any of the three major credit bureaus. Next, you’ll want to keep your credit under lock and key, meaning doesn’t let anyone run your credit for unnecessary things, next is to pay off any outstanding debts if you feel you have too much debt to handle try contacting a debt consolidator. Any payment that has been late for longer than 30 days will be reported to the credit bureaus so it’s important to stay on top of any of your monthly payments. Keep all of your accounts in good standing for the next 8 months and you’ll see improvement in your credit rating. Rebuilding your credit can be a long process, but starting here can help significantly and you’ll be in your new home before you know it.