My husband and I just applied for a mortgage this week. After the broker ran our credit, he informed that the new minimum credit score for mortgage underwriting is an astounding 740.
That’s no problem for us — our scores were around 800 — but that could be a problem for many prospective homebuyers. The average credit score is 723. That’s not to say that you can’t a mortgage if your score is under 740, just that it will be a lot harder and cost you a lot more. If you’re above 740, mortgage issuers are more likely to take the risk on you in this frozen credit market. Perhaps once the market thaws, things will improve.
How Can You Get to 740?
There are a few ways you can get your score to 740.
- Don’t apply for new credit at least six months before applying for a mortgage.
- Clean up newer delinquencies.
- Wait to apply for a mortgage until delinquencies near the 7-year cut-off fall off your report. Ten years if you have serious blackmarks like bankruptcies.
- Pay all bills on time for a year before applying for a mortgage.
- Check your report for fraudulent collections and have them removed.
- Use current credit cards every few months to keep them active.
If You Can’t Get to 740
If there’s nothing really wrong with your credit, but you don’t have enough history or high enough limits to get to 740, then you need to instead focus on saving up a larger down-payment. Banks really prefer to see 20% down these days. If it takes you an extra few months to save more money to reach that target, you’ll have a much easier time qualifying for a mortgage.
If you’re curious, you can learn more about how credit scores work on my previous post. If you want to know your scores, go to MyFico.com to order them all at once. While you’re at it, check your credit reports.
