Minimum Credit Score for FHA Loan To Raise to 620
Fannie Mae, the mortgage insurer, announced early this week that it is revising the eligibility, underwriting, and pricing policy to support housing market liquidity and sustainability. In a statement (PDF file) released on Tuesday, Fannie Mae said that starting December 12, 2009, the minimum credit score will be increased to 620 for all loans delivered to Fannie Mae, including loans insured or guaranteed by a federal government agency (Federal Housing Administration (FHA), Veterans Affairs (VA), Rural Development (RD), and the U.S. Department of Housing and Urban Development (HUD)).
As I mentioned early, though FHA has no minimum credit score requirement for FHA loans, many loan providers (remember FHA itself doesn’t issue loans. The loans come from private lenders) do impose a minimum score limit, usually starting at 580, on borrowers.
One of the reasons Fannie Mae decided to increase the minimum credit score is to “support prudent risk management and better ensure sustainable homeownership.” The revised requirement is clearly the response to the financial crisis that Fannie Mae, and Freddie Mac, had gone through last year (both Fannie and Freddie had to be bailed out by the government). While the increased minimum score is still much lower than what a private mortgage provider requires for a conventional loan, it’s a reminder for anybody, especially first-time home-buyers, that a good credit score is needed even if you want to buy a home with a FHA loan.
Tips to Improve Credit Score
It becomes quite clear in recent years that a good credit score and a healthy credit history are essential not only for a credit card, or a home loan as mentioned above, but in some cases getting the job you want as more and more employers start to request credit reports as part of the hiring process. So how can you make sure that you have the sterling credit that creditors and potential employers want to see? Sure, building a good credit history takes time, in the number of years, not months or days, but with the right strategy, it can be done. Here are a few tips to get started:
- Never late in making a payment: Late payment is the number one killer of credit score.
- Don’t open multiple new accounts in a short period of time: That will be seen in the eyes of creditors as seeking credit too aggressively.
- Don’t close old accounts unless necessary: Closing old accounts will shorten the overall length of credit history.
- Use credit responsibly, don’t go over the limit.
You will also need to keep an eye on your credit by checking periodically your own credit report to discover any wrong information in the report that could negatively affect your score.
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