There is no denying that the FHA loans are the most popular home loans and are an ideal option for individuals with poor credit scores. However, you're mistaken if you think this FHA loan feature prevents you from improving your credit scores. Put simply, you can benefit significantly if you keep your credits and finances in order before applying for the FHA loan.

Why do you need to Improve your Credit to Apply for an FHA Home Loan

While applying for FHA home loans doesn’t require you to have stellar credit scores, it can impact your search for a lender. You may find it hard to get a reliable lender with a credit score that is below 580. While the FHA does back your funds if you default, the lenders work with their own stipulations and rules.

 You need to increase the down payment by 10 percent if your credit scores are below 580. If the FHA loans drop you due to a low down payment, you must improve your credit scores to reach the limit of 580. The limit is 620 if your debt to income ratio is high.

If you want to work with the best terms of FHA loans, try improving your scores to 620. 

Try Free Credit Monitoring 

You can improve your credit scores quickly when you know what impacts them. Try free credit monitoring system to find the factors affecting your credit scores. It helps you track and keep a record of your improvement.

Dispute Questionable Charges 

While you’re following your credit scores, you can dispute questionable charges. Disputing fraudulent charges is one way to improve credit scores significantly. The information provider updates your credit report by deleting the missing info or errors.

Pay Old Debts

High-impact debt is never good for your credit report. It is crucial to settle or pay them as soon as possible to improve their credit scores.

Make Timely Payments

 If you don’t want your debts or loans to affect your credit scores, try paying them on time or before their due date.

Avoid Closing your Old Credit Accounts

Having old credit accounts is good for improving your credit scores. Your credit history accounts make up 15 percent of your credit scores. So if you have old credit accounts that aren’t active anymore, don’t close them to increase your credit scores.

Don't Request New Credit Lines.

Applying for a new credit line means you will have a further inquiries that will decrease your credit scores. It is better to avoid requesting new credit lines if you want to apply for an FHA loan. You can do it at least 6 months before submitting your FHA loan application.

Keep Your Debt-to-Income Ratio Low 

The FHA loans have a specific limit on the debt to income ratio to get approval for the loan. If your debt to income ratio is high, it lowers your credit scores. You can reduce the debt to income-ratio if your credit score reaches 620. The ratio doesn't exceed 57 percent even if you increase your credit scores.

Apply for a Secured Credit Card

This option is excellent if you have sufficient time to build your credit and aren't planning to apply for an FHA loan in the coming years. A secured credit card is easy to build or even rebuild your credit scores.

 When you put the required deposit down for the secured credit card, you get quick approval and improve your reliability. Your progress will be reported to the credit bureaus. Also, getting and using a secured credit card will increase your on-time payment amount and reduce your debt to income ratio.

Save Money for Down Payment 

The more you put down your FHA loan's down payment, the easier it will be to qualify and get the approval. It is especially true if your credit score is low. If the down payment you pay is below 10 percent, you need to pay PMI over your loan or refinance it. Paying a 10 percent down payment, on the other hand, requires you to pay PMI for 10 to 11 years.

This allows you to save a good amount of money, and you can refinance your loan without paying PMI.

What is the Final Verdict?

You must build your credit score to 620 (at least) and save money for a down payment to get the best terms for your FHA loans.