September 23, 2014
A reader asks, “I have a plan to pay off my student loan this year which is 18,000.00. My credit score is 565. This will leave me with 0 debt. Will it also improve my credit score and chances of getting a home loan?”
These types of questions are difficult to answer because credit reporting agencies have their own criteria for evaluating credit, and apply their own standards for factors that might affect scores pushing them higher or lower.
You may find that your FICO score reported by one agency are not the same as reported by another. That’s why FHA lenders look for a FICO score average to determine eligibility.
Having no debt is certainly a plus for an FHA loan application, but a borrower’s credit activity in the last 12 months is a big factor–whether or not this reader has 12 months of consecutive, on-time payments would be a very important factor whatever the FICO score.
That said, FICO scores are important for one reason–FHA minimum standards are lower than those of many lenders. You may find a specific lender’s FICO score standards to be more stringent than FHA program minimums. Lenders may require a credit score of 620 or better.
Borrowers who are concerned about their credit scores should contact the FHA directly by calling 1-800 CALL FHA and request an appointment with an FHA/HUD approved housing counselor in the local area. Borrowers can get excellent pre-purchase advice about FHA loans, credit issues and more.
Do you have questions about FHA home loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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