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Is My Credit Score Good Enough for a Mortgage?

Is My Credit Score Good Enough for a Mortgage?

December 2nd, 2020

With interest rates near all-time lows, now is a perfect time to get a good deal on a mortgage. Of course, every refinance or home purchase loan has borrower requirements to be met, including a decent credit score. How do you know if your credit score is good enough for a mortgage?

What is a credit score?

A credit score is a measure of your ability to handle financial debt responsibilities. It takes into account things like how often you have made payments on time, how large your total debt balance is, how many new credit accounts you have opened lately, what types of credit you have, and how long you have been building your credit history. Credit reporting companies use computer algorithms to calculate a score – a number between 300 and 850 – to represent how much of a default risk you are to a lender.

Which score do lenders use?

There are three major credit bureaus that lenders turn to for credit information about borrowers: Equifax, Experian, and TransUnion. They all use a scoring method created by the Fair Isaac Corporation (FICO) but they calculate it slightly differently. Because of this, many lenders will pull your credit score from each of the big three and use the mid-score to qualify you for the loan and determine what interest rate to offer you.

What do the numbers mean?

The higher your score, the better the mortgage deals you can get. Credit is classified into five risk categories, although the exact range varies slightly between agencies.

  • 300-579: Poor
  • 580-669: Fair
  • 670-739: Good
  • 740-799: Very Good
  • 800-850: Excellent

Scores above 620 are considered “prime” or within the acceptable range of risk. If you are in this credit span you can expect to be offered good interest rates. Those with excellent credit can expect the best rates. Those with scores below 620 are called “subprime,” and while it is definitely still possible to obtain a mortgage, subprime scores will make it more difficult to qualify and the interest rates will jump up. 

The minimum grade for most conventional mortgages – loans backed by government entities like Fannie Mae and Freddie Mac - is 620, but some loans like FHA, VA, and USDA will accept lower credit scores if you have a sufficient income and down payment.

What can you do to boost your score?

You can legally pull your credit report from each credit bureau once a year for free. Several months before you apply for a refinance or home purchase loan, it’s a good idea to check all three. Because lenders typically use the middle score, you want to make sure they are all fairly similar. You should look for any mistakes or discrepancies and report them to the credit agencies. Correcting false information can sometimes bring your credit score up significantly.

You should also take note of which categories could use a boost. If you have had trouble making some payments, try to stay on top of all your credit debts for at least 6 months to increase your score. In other cases, bringing down the balances on your credit cards or other accounts, could help push your number higher. Unfortunately improving your credit score is not an overnight process; it could take months to see a real shift in your credit grade.

The good news when it comes to credit scores and mortgages is that even if you have a low score, there may be lenders and home loan programs available for you. The even better news is that you can always improve your score and qualify for the best mortgage rates and terms.

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Prime 1 Bancorp, Ltd is not affiliated with any government organization or bank nor do we act on behalf of the FHA or VA. This material is not from HUD or FHA and has not been approved by HUD or a government agency. We are not a Federally chartered or State Chartered Bank. We are an we are an Illinois Residential Mortgage Licensee by the Office of Banks and Real Estate Lic #MB.6761138, a California CFL Licensed Mortgage Brokerage by Department of Business Oversights Lic #60DB055973, a Colorado Registered Mortgage Brokerage by Division of Real Estate, a Florida Residential Mortgage Brokerage Licensed by the Office of Financial Regulation Lic #MBR1930 dba Prime 1 Mortgage Inc, a Kentucky Mortgage Loan Broker Licensed by the Office of Financial Institutions Lic #MB729362, a Tennessee Licensed Mortgage Broker by the Department of Financial Institutions Lic #218020, a Texas SML Licensed Mortgage Brokerage by the Texas Department of Savings and Mortgage Lending, and a Wisconsin Licensed Mortgage broker by the Department of Financial Institutions Lic #1434638BR Prime 1 Bancorp, LTD Corporate Office is located at 2720 S. River Rd Suite 50, Des Plaines, IL 60018 our Toll Free Number is 888-205-3737. NMLS: 1434638

Loan product availability is subject to qualification of the borrower and loan approval after full review of the file. Not every applicant qualifies or is eligible for every loan program. Some loan products may not be available in all states. Loan approval, note rate and annual percentage rate are dependent on factors including, but not limited to, credit, collateral, income, assets and overall financial history. Not all applicants will be approved for a loan. All loan programs, terms and annual interest rates are subject to change without notice. NMLS: 1434638

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