Credit Scores and Home Buying

Key Video Takeaways

David and Lia are like many of the 86.3 percent of college graduates who had to borrow money to pay for a four-year undergraduate education. Now they worry about how that might affect their chances for buying a home.

The average cumulative debt of America's loan-taking undergraduates is $24,651, according to FinAid. It's a whopping amount (and that doesn't even include graduate school loans). So it's no surprise that David and Lia, who are still paying off sizable college loans, are worried about how this debt might compromise their chances of homeownership.

David, who's self-employed and renting in an apartment complex, is further worried by a ding that he found on his credit report, even though he has very little credit card debt.

Working in favor of David's financial footing, however, is that he maintains a low balance on his credit cards. Not skipping payments on the credit cards, nor his student loans, is what's going to help David the most. Paying debt on time keeps your credit score in good standing. If you've had any missed payments, this can negatively affect your credit score.

David and Lia asked the What Works Now experts about how college debt might play into the home loan process. Todd Dal Porto, Home Loans Enterprise Sales Executive at Bank of America, and personal finance expert Lynnette Khalfani-Cox say potential homeowners need time to achieve a low-debt-to-income ratio, and a good payment history.