This Is What Your Credit Score Should Be to Buy a House

updated Oct 3, 2023
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Thinking about buying a home? Congratulations! This is a big life moment, one that will require a lot of attention to detail, responsibility, and research. And good for you for already beginning your due diligence! But while you might feel ready to make the leap and invest, there still are factors that can hold back even the most qualified of potential homeowners. One of the most common of these hurdles is bad credit. Having a bad credit score can make mortgage lenders wary of offering you money and cause your interest rates to soar through the roof. But if you’re just getting acclimated to the idea of buying a home and don’t think your credit is where you want it to be, don’t worry, there are things you can do to improve your score, whether you’re looking to change from bad to good, or good to better. Here, everything you need to know about your credit score if you’re looking to buy a house:

Credit Score Range:

You might already know this, but just to recap: A credit score is a three-digit number based on your credit history. It’s determined by an algorithm that takes into account the number of open credit accounts you have (like your rent, credit cards, and student loans), your purchase history, your payment history, and any outstanding balances. It can range from 300 (the lowest possible score) to 850 (the highest possible score).

Don’t know your credit score off the top of your head? There are many places to get a good estimate for free. If you have a credit card, your provider might print your score on your monthly statement or have it available via their online user portal or app.

However, if you want to know what your credit score actually is, you will need to know your numbers. Fun fact: You actually have multiple credit scores, but the most commonly used by lenders is the FICO score. Your FICO score will vary, depending on which of the three major credit bureaus (TransUnion, Equifax, and Experian) your credit report is being pulled from. You can get your FICO score for free from many credit cards and banks, or you can pay to download it from FICO’s website.

Mortgage lenders will use something called a tri-merge credit report, which merges your credit reports across the bureaus, to determine your mortgage, says Richard Redmond, vice president and broker of record at ACM Investor Services, Inc., in Larkspur, California. Have the same information your lender has by requesting that your lender provide you with a copy of this report before you authorize the lender to obtain it. Mortgage lenders will not merge your credit scores, but will commonly use the middle score, according to CreditRepair.com.

Once you have your credit score, you’ll want to figure out what those three numbers mean. According to Credit Sesame, credit scores are broken down like this:

Excellent: 750 & Higher

Good: 700-749

Fair: 650-699

Poor: 550-649

Bad: 550 & Under

As of April 2018, the average FICO credit score in America was 704. While having a credit score along the national average is good, it’s always beneficial to have a higher credit score in the home-buying process, since your credit score is a large factor in determining whether or not you can get a mortgage, as well as how much you’re approved for. If you have good credit, it’s likely that you will be approved for a higher mortgage than someone with a low credit score.

Why does your credit score matter so much? It’s a universal way of measuring how risky it would be to lend you money. Mortgage lenders look at a good credit score and see that the applicant is low-risk, meaning that they can be confident that the applicant will pay back the loaned money in a timely manner. However, bad credit signals to your lender that there is a high risk that you would not be able to pay back your loan on time.

Your credit score can also tell you how much more you’ll end up paying for your home, on top of the asking price.

“The ramifications for lower credit is that you’re going to pay more money,” says Douglas Boneparth, president of Bone Fide Wealth, a financial advisor firm geared towards millennials. “The higher the score, the lower the penalties.”

Typically, lenders will give you a lower interest rate if you have a high credit score. If you have a low credit score, not only will you pay higher interest rates, but there’s an additional chance you’ll have to take on private mortgage insurance (PMI) at an additional cost, Boneparth says.

Experts say that the best credit score you ever really need to buy a home is 760, since that’s the score threshold for securing the best rates.

How To Get A Good Credit Score:

ust checked your score and find it’s less than stellar? It’s not necessarily hard to <a rel="noopener noreferrer" href="raise%20your%20credit%20score%20when%20you%20make%20a%20concerted%20effort.%20However,%20it's%20not%20something%20that%20you%20can%20fix%20overnight.%20</p>%0A%0A%0A%0A<p>%E2%80%9CThe%20first%20thing%20you%E2%80%99re%20going%20to%20need%20is%20time,%E2%80%9D%20Boneparth%20says.%20That%20means%20months,%20and%20maybe%20even%20years%20of%20making%20on-time%20payments.%20</p>%0A%0A%0A%0A<p>Aside%20from%20time,%20there%20might%20be%20some%20quicker%20fix%20options.%20Want%20to%20know%20what%20else%20you%20need%20to%20do%20to%20better%20your%20score?%20Review%20your%20<a%20href=" https:>credit report.

“Informing yourself is a massive plus,” says Boneparth. “How could you know what to work on if you don’t know what’s wrong?” There might be an outstanding charge you’ve never heard of or completely forgotten about. Just paying off any accounts in collections can help quickly raise your score.

Legally, you’re allowed to pull credit reports from each of the three major bureaus once a year. You can request them from annualcreditreport.com, a federally-approved website.

See something that seems wrong on your credit report? Reach out to the reporting credit bureau as well as the company or organization the account is from. The credit bureau will then investigate the line item on your behalf. If it is a mistake, it will be deleted or corrected, and your credit score will improve.

A couple other reasons for a low credit score could be that you just graduated college, or never rented an apartment or had a credit card before. This is not a bad position to be in, since you can raise your credit score quickly compared to those who have a bad score because of public records (bankruptcies or tax liens), bills in collections, and a high number of recent credit applications. Apply for a basic credit card from your bank. You’ll likely be approved with a very low credit limit, but once you start using it for purchases (and paying it off on time), you’ll see your score improve.

If you’re not so lucky to be in that situation, your credit score will only rise once you take charge of your outstanding balances—that means tightening your belt where possible to put as much money towards your debt, and ensuring you are making payments on-time. Setting payment reminders or setting up autopay can be helpful if paying on-time is a problem.

What Is A Good Credit Score To Buy A House?

So here’s what you came for: The credit score you need to get a mortgage to buy a house. Well, to be honest, there’s no simple answer. If you’re going through a lender with a fixed-rate, adjustable-rate, or two-step mortgage, the needed score will vary based on what <a rel="noopener noreferrer" href="city%20you're%20looking%20in,%20the%20lender%20you're%20applying%20with,%20and%20even%20the%20neighborhood%20you're%20hoping%20to%20live%20in.%20</p>%0A%0A%0A%0A<p>But,%20generally,%20banks,%20credit%20unions,%20and%20lenders%20consider%20anything%20above%20680%20to%20be%20good%20enough%20score%20to%20get%20a%20mortgage,%20says%20Redmond.%20Again,%20mortgage%20rates%20tend%20to%20be%20tiered,%20so%20expect%20better%20rates%20with%20a%20score%20of%20720%20or%20740.%20</p>%0A%0A%0A%0A<p>If%20your%20score%20is%20closer%20to%20600,%20you%20can%20still%20get%20a%20private%20mortgage%E2%80%94but%20prepare%20to%20pay%20for%20it.%20You%E2%80%99ll%20most%20likely%20need%20to%20go%20through%20a%20bank%20or%20broker%20that%20has%20a%20correspondent%20or%20wholesale%20relationship%20with%20many%20different%20banks,%20credit%20unions,%20and%20lenders,%20rather%20than%20your%20local%20community%20bank,%20Redmond%20says.%20You%E2%80%99ll%20also%20have%20to%20settle%20for%20an%20often%20higher-cost,%20fixed-rate%20mortgage%20rather%20than%20an%20adjustable%20rate.%20Secondary%20market%20mortgages%20tend%20to%20be%20more%20expensive%20overall,%20since%20they%20come%20with%20higher%20closing%20costs,%20less%20flexibility,%20require%20<a%20href=" https:>private mortgage insurance, and require you to put property taxes and insurance in an escrow account as well.

Additionally, those with lower credit scores can also qualify for a government-sponsored mortgage loan or a federal housing authority (FHA) loan.

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Re-edited from a post originally published 05.16.2018 – LS