Buying a house can be a huge wake-up call, especially when you learn what your credit score is and how it affects your mortgage application.

On the bright side, the average FICO score in the U.S. was 714 in 2022, which is pretty darn good overall. However, that includes the higher scores of people who already own homes and make regular mortgage payments.

The better news is that a perfect credit score isn't always needed to score a home loan. There are many different loan types for first-time homebuyers, each with its own credit score requirements.

For example, a conventional mortgage usually allows for a credit score of 620, but you could qualify for an FHA loan with a score as low as 580 — and you'll only need to put down 3.5%.

What makes up a credit score?

When you're looking to borrow money, credit scores play a pivotal role in determining whether or not you qualify for a mortgage loan, as well as the mortgage terms and interest rate you're offered. A good score tells lenders you're reliable and will likely pay them back on time.

To keep your credit score in good shape, it's helpful to know what goes into it. FICO credit scores, for instance, are made up of the following list of ingredients:

• 35% is your payment history: whether you pay your bills on time
• 30% is your debt-to-credit ratio: how much of your available credit you're using
• 15% is your credit history: how long you've had credit
• 10% is your credit mix: the different types of credit you have, like credit cards, student loans, car payments and the like
• And the final 10% represents your appetite for credit: how often you've applied for new credit in the past 24 months

How to polish up your credit score.

No need to stress if your credit score isn't where you want it to be: as a first-time homebuyer, there are simple ways to boost it. These are the factors that your lender will look at when they're deciding whether or not they're willing to take a risk on you as a borrower.

1. PAY BILLS ON TIME: It may seem like a no-brainer, but even a tiny missed payment can have a big impact. For instance, if you owe just a few bucks on a store credit card, not paying it off on time can tank your credit score. So, make sure you pay your bills on time to avoid late payment dings.
2. REVIEW CREDIT REPORTS FOR ERRORS OUTDATED INFO: We suggest regularly checking your credit reports for mistakes. Get a free copy of your credit report and look for errors like misspelled names, wrong addresses, duplicate entries or credit lines you don't recognize. These errors can hurt your credit score, so it's crucial to report them to the credit bureaus (Equifax, Transunion and Experian) to have them corrected. Doing this will help keep your credit report up-to-date and accurate, which is essential for maintaining a healthy credit score.
3. KEEP BALANCES LOW: To increase your chances of getting a good interest rate on your mortgage, it's crucial to keep your credit card balances low. Lenders look at your debt-to-credit ratio; having low balances makes you look like a responsible borrower. So, try to pay off your balances weekly, not just at the end of the month. This shows lenders that you can manage your debts and are less of a risk. And don't make any new purchases on your cards, especially high-priced items like furniture or vacations. Who knows? It could be the difference between getting a good interest rate or not.
4. DON'T OPEN NEW ACCOUNTS: It's tempting to sign up for every credit card that promises rewards and bonuses, but be careful not to go overboard. Opening too many new accounts in a short period can make lenders see you as a risky borrower who relies too much on credit. So, be smart and apply for credit only when you need it.
5. KEEP OLD ACCOUNTS OPEN: When applying for a mortgage, don't close any of your credit card accounts, even if you don't use them. Keeping them open shows the bank that you have extra credit available but aren't using it all up. This is good because it makes your debt-to-credit ratio look better. If you close any credit cards, you'll have less credit available, which could lower your credit score and make it harder to get approved for a mortgage. So, it's best to wait until after you've closed on your mortgage — and are in your new home — before closing any credit card accounts.
6. FIX YOUR CREDIT MIX: It's a good idea to have (and use) a few different credit cards, even if you prefer using just one card for great rewards, like cash back or airline miles. Having only one card can limit how many payments you can make each month, but paying off another card on time will show that you're responsible with credit. And it'll boost your credit score. Just be sure to give yourself time to establish the new card before applying for a mortgage.

Talk to a local loan officer or apply online.

Before you start hunting for your dream house, it's really important to understand your credit score and what it takes to get approved for a home loan.

Having a good credit score can definitely make things easier, but even if your score isn't perfect, there are still ways to get a loan. Talking to a loan officer can clarify your options and help you find the right loan.

If you're a prospective homebuyer and your credit score is in good standing, reach out to one of our local loan officers to discuss which mortgage would be best for you.

Or, if you're ready to get started, apply online today!