Breaking the credit code for house hunting success

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Published Date 4/25/2025

Credit scores. We live and die by them if we want to get a good rate on a car loan or a credit card with a few perks. When it comes to buying a home, however, it’s just about everything.

Realtor.com’s Jamie Wiebe says improving your credit score isn’t rocket science. It’s just a numbers game. And numbers can go up or down depending on what you do to affect them. Also called a FICO score, your credit score is a simplified calculation of your history of paying back debts and making regular payments on loans. “If you're borrowing money to buy a home, mortgage lenders want to know you'll pay them back in a timely manner. Your credit score is an easy estimate of those odds,” she says.

To help, Wiebe offers a crash course on this all-important little number, and how to whip it into the best home-buying shape possible. First off, the Federal Housing Administration requires a minimum credit score of 580 to permit a 3.5% down payment, and major lenders often require at least 620, if not more. Some will go as low as 500, but don’t count on it.

The three major U.S. credit bureaus (Experian, Equifax, and TransUnion) each releases its own credit scores and reports, which are a more detailed history that's used to determine your score. Those scores should be roughly equivalent, although they do pull from different sources. For example, Experian considers on-time rent payments while TransUnion has detailed information about previous employers.

To access these scores and reports you can go to AnnualCreditReport.com, where you can get a free copy of your report every 12 months from each credit-reporting company. While It doesn't include your credit score (you'll have to go to each company for that), you can pay a small fee to get the number that defines your credit-worthiness. But the real no-brainer is simply to check with your credit card company, as many of them offer free access to scores and reports. Once you've got that report in your hot little hands, however, it’s time to review it page by page, looking closely for the “adverse accounts" section that details late payments and other slip-ups.

Improving your credit score takes a bit of work, but the payoff can work wonders for your home buying future. Like going to a therapist to find out the root of a nagging life issue, to improve your credit score means uncovering precisely the reasons it’s not the prettiest number to begin with. Scenarios range from late payments to errors you may not even be aware of.

A 2021 Consumer Reports study found that more than a third of respondents found at least one error in their credit report. So if you spot any mistakes in your report, start by sending a dispute letter to the bureau, providing as much documentation as possible, per FTC guidelines.

On to the sources who provided the bad intel. A bank? A medical provider? An old department store account? Ask it to update the info with the bureau. Patience is a virtue, however, as this doesn’t happen overnight. You may need documentation to make your case. But once the bad information is removed, you should see a bump in your score.

Uh-oh. Made a late payment or two? Call the company that registered the late payment and ask that it be removed from your record. Wiebe says that most companies will indeed tell their reporting division to remove an anomaly from your credit report, but it won't work if you have a track record of late payments.

And here’s a no-brainer way to increase your credit score: Pay off your debt. Not an option? Wiebe says your next best bet would be to ask your credit card companies to increase your credit limit. Before you ask what she’s smoking when she suggests this, it’s about improving your debt-to-credit ratio – how much you owe compared to how much you can borrow. To get your head around this, think of it this way: Having $1,000 of credit card debt is bad if you have a limit of $1,500. It isn't nearly as bad if your limit is $5,000. The simple math: While you owe the same amount, you're using a much smaller percentage of your available credit, which shines well on your borrowing practices.

Unfortunately, negative items (such as those habitually late or nonexistent payments) can stay on your report for up to seven years. The good news? Changing your habits makes a big difference in the “payment history" segment of your report, which accounts for 35% of your score. That's why it's essential to start early so that you're sitting pretty once you're shopping for homes and find one that makes you swoon.

The bottom line: The most commonly used type of mortgage loans typically require a minimum credit score of 620, though some may require a score of 660 or higher. A “jumbo loan” lives up to its name, allowing lenders to supply a higher loan amount while following the same requirement of a conventional loan. But more money means requiring a higher score: 700 or higher.

If you're going with an FHA loan (which is backed by the Federal Housing Administration), you’ll need at least a 500 credit score if you're putting 10% down. But if your down payment is under 10%, your score needs to be at least 580. And a VA lender usually looks for a score of 620 or higher. USDA loans are backed by the U.S. Department of Agriculture and are mainly for low to moderate income buyers looking to purchase a home in rural areas. Most lenders want to see a credit score somewhere between 580 and 620.

Realtor, TBWS

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