My Credit Score is 640 and Wife's is 740 - Can We Get a Home Loan?

Reader Question: "I've had bad credit for a while, but I've been fixing it for the last two years. I had substantial credit card debt and defaulted on a lot of them. They will all be paid off within the next couple of months. My credit report shows four accounts that are paid in full, but shows that they were delinquent about a year ago. My current credit score is 640 and my wife (who is not on any of these accounts) has a 740 credit score. How hard is it going to be to get a home loan? Total income is 125,000 a year."

First of all, keep on doing what you're doing! It sounds like you are on the right track, and that you've come a long way in terms of improving your credit score. There's nothing you can do to remove the initial delinquencies from your credit report, even though you have paid those debts in full. Paying them off is the right thing to do, but the initial delinquent reporting can remain on your credit reports for up to seven years. Still, you are doing the right thing by paying your old debts, and a mortgage lender will take this into consideration.

A credit score of 640 is a little low for mortgage qualification, by today's standards at least. Most lenders would put you into the subprime category, and they just aren't making subprime loans anymore these days. But you don't have far to go -- 670 is the minimum qualification score cited by most lenders today. Of course, they'll also look at your debt-to-income ratio and other factors. But the FICO score is important.

Your wife's credit score of 740 is definitely strong enough for mortgage approval. If the two of you apply for a mortgage together, the lender will take both of your financial histories into account. So you stand a good chance of getting approved for a loan -- especially if you can bump your own score up to 670 or above.

My advice is to keep up what you're doing. You might also want to apply for a mortgage quote, just to see what kind of feedback you get. If a lender denies you, they will tell you the reasons why. They may also give you specific advice on what to fix. It couldn't hurt.