Over 50% of Americans get turned down for a loan due to bad credit, with 68 million having a credit score lower than 600. If you’re looking to buy a home, it’s somewhat difficult to find lenders who will shell out the cash for a mortgage loan with a credit score that low.
However, there are things that you can do to help you increase your credit score over the course of a few months or years so that you’re eligible for a mortgage loan at a great rate. If you need to apply for the loan sooner rather than later, here are a few tips to help you get started.
Understand Mortgage Score Requirements
What’s the minimum credit score for a mortgage loan? It depends on the type of loan you’re applying for. Conventional mortgage loans from lenders such as Freddie Mac and Fannie Mae are some of the toughest to qualify for, but they come with better interest rates. Freddie Mac, for example, requires a minimum credit score of 660 but will lower it if you’re able to make a 25% down payment. The higher your credit score, the better your rates will be, ultimately reducing the amount of interest you’ll pay over the life of your loan.
Download a Credit Monitoring App
If you understand where you need to be, you’ll now need to know where you’re currently app. Download a credit monitoring app like Float that will give you access to bi-weekly updates of your credit score along with other helpful information such as what’s affecting your score if it’s low. Use the app to monitor changes in your score as you work to improve it and take advantage of the tips that Float gives you within the app.
Make Adjustments to Your Financial Habits
After gaining a comprehensive overview of your current financial situation and credit score, it’ll be time to make some changes. Float will give you tips to help you improve your credit score, such as recommending that you take a look at your credit utilization rate or try to stay on top of your missed payments. Take those to heart and develop an actionable plan that works for you financially. It helps to create a spreadsheet of your income and expenses and see how you can work to pay off debt, make on-time payments, and ultimately increase your credit score (while saving more for a down payment).
Look into FHA Loans
As mentioned, there are different types of mortgage loans available outside of conventional loans. FHA loans are among the most common for those with bad credit. In fact, getting a mortgage loan with bad credit is a lot easier with an FHA loan. After VA loans, they have the second-lowest credit requirements, meaning that you can get a mortgage loan with a credit score as low as 500 if you need to. While this is an option, you’ll need to be prepared to pay a larger down payment (10% if your credit score is under 580, for example).
Use Float for Credit Monitoring & Loans
If you’d rather wait a while and improve your credit score while saving more for a larger down payment, it’s wise to continue to monitor changes in your score. It’s a great way to see what’s working and what’s not, and when your score goes up, it feels great to celebrate in that win.
Using Float as your go-to credit monitoring app helps, but we offer more than credit monitoring and the ability to share your score with friends and family. We also have a loan marketplace that you can visit to help you find loans that work for you. Browse through different lenders’ offerings before making a decision and always look for at least two or three offers.
Need another type of loan before taking out a mortgage loan? Browse our regular loan marketplace where you can find loans for college, debt refinancing, and even home improvements once you move into your dream house.