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Entry-level home borrowers are kept out of the market as credit remains tight

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New home sales dropped 14.5 percent to a 384,000 annualized pace in April, the weakest since July, according to Commerce Department data. The slump was concentrated in homes priced less than $300,000; entry-level home borrowers were kept out of the market as credit remained tight.

Lenders remain cautious about making home loans to people with less than perfect credit because Fannie Mae and Freddie Mac have forced banks to repurchase defaulted home loans with a balance of $81.2 billion between 2011 and 2013 alone. Lenders say that is a major reason they’re requiring credit scores averaging about 740 on loans they sell to the government-owned mortgage companies, far above the sub-700 average before 2007.

Melvin L. Watts, director of the Federal Housing Finance Agency which oversees Freddie Mac and Fannie Mae, encouraged broader credit access in a speech yesterday. "Housing finance is such a critical part of the economy," he said. "To stop or stand in place is just not an option."

Managing your debts well does more than earn you a great mortgage rate. It ensures that you are more likely to buy wisely and live within your means. And that makes lenders view you as a good risk.

You can improve your scores if you pay debts off early and avoid late payments. Pay off credit cards that charge the highest interest first. Don't incur new debt. Don't max out your cards.

The bureaus don't share information, so if you want a true picture of your credit, check all three bureaus.

You can contact all three credit bureaus or visit AnnualCreditReport.com.

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