What credit score is needed for a mortgage?
In uncertain times, many Americans are wondering what credit score is needed for a mortgage because buying a home is one of the largest investments that most Americans will make in their lifetime. In order to qualify for a mortgage a credit score must reflect a responsible use of credit. With a large financial risk at stake, conventional mortgage investors want to see a solid credit history in your credit report.
Use this information to help you set a credit score goal and reach your target:
Credit Score Minimum for a Mortgage
The minimum credit score for a conventional loan is a 620 FICO. All conventional and federally backed mortgage options have a minimum credit score requirement to qualify. Your target minimum credit score should be a 620 FICO or higher. With a 620+ credit score your credit score will qualify for all conventional and government backed mortgages.
The Credit Score for the Best Rate
Getting the best mortgage deal possible should be everyone’s goal. We certainly would like to help our customers get the best mortgage options available to them. One of the best ways to get a better interest rate on your loan, is by having an excellent credit score.
If you have a 740 FICO credit score or above, you can qualify for a better interest rate in many loan scenarios.
Credit Bureau Reports
A FICO credit report contains 3 variations of your score, one from each of the 3 U.S. credit bureaus. Experian, Equifax, and TransUnion are the companies where creditors send reports of your credit transactions. However, not all creditors report to all 3 bureaus, which can cause variations in your score.
As a mortgage lender looks at your credit report they will accept the middle score of the 3 reported scores in your FICO report. If there are only two scores on your credit report, the lower of the two scores will be counted for your mortgage qualification.
Your Spouse’s Credit
If you are looking to include your spouse’s income in your mortgage application, don’t forget that their credit score will be considered in your qualification. All mortgage lenders must include the credit reports of all applicants.
The middle score on the FICO credit report of the spouse with the lowest credit rating will be the score considered for qualification. For this reason, it is important that both you and your spouse build good credit.
Calculating a Credit Score
Each time you pay your bills, you are building credit. Companies that bill you for goods and services report your payment history and credit use to credit bureaus. Your credit score is primarily calculated by tracking your payment history, use of different types of credit, and the length of time that you have utilized your credit.
You may not know that there are different types of credit, and using more than one type of credit helps you build a better credit score. Utilizing these various types of credit and paying all bills on time is the best way to build your credit score.
The three main types of credit:
- Revolving Credit – This type of credit allows you to continually borrow and repay money from a credit line. Credit cards and other types of revolving credit have a maximum amount or limit. Keeping the amount you borrow against your revolving credit line under 30% of the maximum and making on-time payments, will help build your score.
- Installment Debt – This type of credit is usually borrowed as a lump sum and then repaid over a set period of time in installments. A car loan, financing for furniture or appliances, student loans, business loans, and mortgages are all types of installment debts. Paying these bills on time is important to building a healthy credit score.
- Open Credit – This type of credit involves a payment for goods and services that can vary from month to month. Examples of open credit are utilities, insurance payments, rent or lease payments, phone/wifi/data plans, and subscription services. Paying the bills for these goods and services on time will aid in building your credit score.
We are here to help you answer all of your mortgage related questions. If you are ready to buy a new home of refinance you current home, we can be the experts on your team. Reach out to us and speak with a licensed mortgage consultant about your goals.
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