While purchasing a home in cash would be the homeownership's best-case scenario, for the vast majority of home buyers, the only way they’ll be able to meet their homeownership goals is by means of a mortgage.
In order to qualify for a mortgage, you must be able to prove your ability to repay your loan. To do so, you need to have a good credit rating, a stable job, a sizable amount of cash to make an initial down payment as well as a number of other requirements.
Out of all of those requirements, your credit score is one of the most important factors that lenders will consider when you apply for a mortgage.
That’s because all mortgages have a minimum credit score needed to qualify. And the higher your score, the better your terms will be.
For reference, according to TheLendersNetwork.com, the typical credit scores by mortgage type are:
FHA Loan - 580+
VA Loan - 620+
USDA Loan - 640 +
FHA 203K Loan - 620+
Conventional Loan - 620+
(Of course, these numbers could change depending on your area. Make sure to consult a trusted mortgage broker or mortgage agent to confirm the credit scores you need to have to qualify.)
Your first step towards improving your credit score is getting a credit report, so you know what your current score is (But be careful how many times you pull your score because checking your credit score too often can actually lower your credit score).
In the USA, you’re entitled to get a free copy of your credit each year from the 3 major credit reporting bureaus (Experian, TransUnion, and Equifax).
To get a free copy of your credit report, go to www.annualcreditreport.com. Although there are a number of websites that offer “free” credit reports, annual credit report.com is the only website authorized by the Federal Trade Commission to provide free credit reports.
As you go through your credit report, analyze it carefully and see if you can spot any mistakes. If you do, you’ll have the option to dispute those mistakes, which would improve your overall score.
At the same time, if you have a late payment or two, it’s possible to get them removed. Call the company that registered them, and ask them to remove those late payments.
If you only have one or two late payments, there probably won’t be any pushback, and the company will most likely remove them. But if you habitually make late payments, they likely won’t.