Target scores by loan type
| Loan Type | Minimum | Ideal | Benefit |
|---|---|---|---|
| FHA | 580 | 680+ | Lower MIP, better rates |
| VA | 620 (overlay) | 700+ | Lowest rates available |
| USDA | 640 | 680+ | Automatic approval pipeline |
| Conventional | 620 | 740+ | Best rates, lowest PMI |
The mortgage-ready rebuild plan
Phase 1: Foundation (Months 1-6)
Open a secured credit card with $300-$500 deposit. Use for one small recurring charge. Pay full balance monthly. Keep utilization below 10%. Pull free credit reports and dispute errors on discharged debts.
Phase 2: Diversification (Months 6-12)
Add a credit builder loan ($25-$50/month). Ask a trusted family member to add you as authorized user on their card.
Phase 3: Growth (Months 12-18)
Upgrade to unsecured card or apply for one new unsecured card. Keep total utilization below 10%. Continue all payments on time.
Phase 4: Mortgage prep (Months 18-24)
Stop opening new accounts 6 months before mortgage application. Check score monthly. At 580+ (FHA) or 620+ (conventional), get pre-qualified.
Common mistakes that kill mortgage applications
- Opening new credit too close to application -- new accounts and inquiries lower score temporarily
- High card balances on statement date -- bureaus see statement balance, not what you actually owe
- Co-signing for someone -- their debt counts against your DTI
- Changing jobs -- lenders want 2 years of stable employment
- Large unexplained deposits -- trigger underwriting questions
- Paying off collections right before applying -- can paradoxically lower score temporarily
Every point counts. A 40-point improvement (640 to 680) on a $250,000 mortgage saves $30,000 to $50,000 over 30 years. The time you invest in credit building during the waiting period pays for itself many times over.