how to improve my credit score

Home Buying Myths Busted

5 Common Home Buying Myths Busted

There is so much to consider when buying your first home. Advice often pours in from well-meaning parents and friends, which can contradict what you’ve read in your online research and received from your mortgage lender and real estate agent. What we do know is that licensed mortgage lenders and real estate agents are the professionals you should turn to for specialized advice and who we have turned to debunk these five homebuying myths.

1. You must have a 20% down payment.

While a 20% down payment can keep you from paying private mortgage insurance on a conventional home loan until you have obtained 80% equity, you can qualify for a home loan with a much lower down payment.

With a good credit score, you can purchase a home with a conventional mortgage with a 3% down payment. FHA home loans will accept a 3.5% down payment. VA home loans and USDA home loans have a zero down payment requirement, but they have additional lending criteria.

2. The down payment is the only money that needs to be put down to qualify for a home loan.

Saving for a down payment is often the focus for first-time homebuyers, but more funds are required to cover additional fees and closing costs. Homebuyers are responsible for the cost of the home inspection, home insurance, property taxes, and closing costs which are approximately 4% of the purchase price. If you get pre-qualified for a home loan with a reputable mortgage lender, they will provide a home budget and estimate your additional costs.

3. You must have a high credit score to qualify for a home loan.

The average FICO® score on all loans closed in February 2021 was 753, according to the Origination Insight Report by Ellie Mae. While lending criteria have tightened this past year, and a higher credit score will help you receive a lower interest rate and loan terms, don’t despair if your credit score is less than perfect. There are still many mortgage loan options for home buyers with lower credit scores.

Here’s a guide to the minimum credit scores for the four most common home loan programs. Each mortgage lender will have their own lending criteria.

  • Conventional loans usually require a 620 minimum credit score, but a higher credit score can help you to receive the lower “advertised” rates.
  • Depending on your down payment and debt-to-income ratio (DTI), you can qualify for an FHA home loan with a 580 credit score, and maybe even lower with a higher down payment. Still, most lenders will require at least a 620 credit score.
  • Most lenders require a minimum credit score of 640 for a USDA loan, though some may go as low as 580.
  • The Department of Veterans Affairs doesn’t technically have a minimum credit score to qualify for a VA home loan, but most lenders will require a minimum credit score between 580 and 620.

4. There’s a perfect time of year to buy a home.

Spring is often seen as the best time of year to buy a home. It is often the most competitive time to search for a home, which can drive up prices. Warmer weather is more conducive to house hunting, and families want to get settled in a new home before the new school year. Winter, particularly around the holidays, is often less competitive but usually has less inventory. Additional factors such as interest rates and location can also impact the market any time of the year.

The best time to buy a home is when you are financially prepared. You have been pre-qualified with a mortgage lender and have received a home purchase budget. A mortgage lender will provide a savings goal for your down payment and closing costs, review your credit score and credit report, and advise what your debt-to-income ratio should be. Ideally, you will have some additional savings to cover moving, furnishings, your first few mortgage payments, etc. When you have met these criteria, then that is the perfect time to buy your home.

5. You do not need a home inspection.

Home inspections are optional. If you are buying a home in a competitive market, it might be tempting to waive your right to a home inspection to make your offer look more attractive to the seller, but this could be a costly mistake. The home inspector works for you and will identify any potential issues with the property before committing to the purchase.

A licensed home inspector will provide a complete report of the home’s condition, such as the foundation, electrical wiring, plumbing, age and condition of the roof, HVAC system, etc. If the home inspector identifies any issues during the home inspection, you can use the report to request the seller to make the repairs or to negotiate a lower purchase price for you to make the repairs before purchase.

Understanding Your VantageScore Credit Score

A credit score is designed to help lenders gauge how likely you are repay the money you want to borrow.

A good score may mean you have easier access to more credit, possibly even at lower rates. But the real key to improving your score is to focus on managing your credit better. The consumer benefits of a good credit score go beyond the obvious. For example, underwriting processes that use credit scores allow consumers to obtain credit much more quickly than in the past.

Credit scores also help promote objective lending standards — diminishing discrimination and human error. And credit scores also help to promote responsible lending by matching the appropriate types of credit to consumers based on their risk profiles. Perhaps most importantly, credit scores give borrowers an incentive to adopt better financial habits in order to receive the best terms and conditions from lenders.


What influences your score?

How many credit accounts do you have? How much have you borrowed? How promptly have you made your required payments? These and other key factors influence your credit report and, ultimately, your VantageScore credit score.

  1. Payment History
  2. Age and type of Credit
  3. Percent of credit used (utilization rate)
  4. Total balances / debt
  5. Recent credit behavior and available credit


What is the range of the VantageScore?

A score generated using the VantageScore 3.0 model, will range from 300 to 850 — a numerical scale that is more commonly used by other credit scoring models.

Regardless of the model’s score range, higher scores indicate to lenders that you’re a less risky borrower, while lower scores indicate that you’re an increased risk.


How to improve your score?

There are several ways to improve your credit score. But it’s much more important to focus on improving what’s in your credit report rather than obsessing over your credit score. Here is some general advice:

Pay your bills on time. How promptly you pay your bills has the strongest influence on your VantageScore 3.0 credit score.

Apply for credit only when you need it. Do not open too many accounts too frequently. And avoid opening multiple accounts within a short time span.

Keep your outstanding balances low. Aim to keep balances below 30% of the credit limit on any account.

Reduce your total debt. It is not necessarily bad to owe some money. But it is not good to owe too much money. Consider paying down some of your outstanding loans.

Build up a credit history. Maintaining a timely payment history for a mix of accounts (e.g., credit cards, auto, mortgage) over a longer period can improve your score.


Action How Lender Views This Action Impact To Your Credit Score
Pay bills on time Wisely handling debt Improvement
Not use all available credit Sufficient access to credit, unlikely to need additional funds Improvement
Hold accounts for long periods Experienced credit user Improvement
Use different types of loan products Experience with different types of repayment requirements Improvement
Inquire about new loans Are you just expanding access or taking on too much? Slight drop
Open a new loan Are you just expanding access or taking on too much? Slight drop
Open other new accounts Will you be able to effectively manage more credit? Slight drop
Max out credit cards Potential signal of increasing risk Drop
Pay late for the first time Potential signal of increasing risk Drop
Pay multiple loans late All credit at risk Larger drop
Miss three or more payments on a loan All credit at risk Larger drop
Stop paying loan Default Major drop
Foreclosure Default Major drop
Bankruptcy Default Maximum drop over extended time period


Check for accuracy on your credit report. If there are any mistakes, you should contact the credit bureaus and file a dispute. Your FinLocker offers a convenient link to file a dispute with all three credit bureaus.

FinLocker users can to view their credit score, payment history, credit inquiries, active accounts, length of credit and more.  Your credit score is a VantageScore 3.0. If you have not signed up for your complimentary credit score and monitoring, log in to your FinLocker to get started.

Sources:  How to improve your score

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