What Credit Score Do I Need to Buy a House?

What FICO Credit Scores Do Mortgage Lenders Use?

Your credit score is a critical factor in determining if you can purchase a house, what programs you will qualify for, how much you’ll need to have saved for a down payment and what interest rate you’ll pay over the life of your home loan.

You could have a high paying job, but if your credit score is low your road to homeownership might be a long one. Fortunately, there are some mortgage programs available for people with low credit scores; so, even if you’ve had issues in the past, you  may still have a path moving forward.

Your credit score is often referred to as a FICO score, but what’s FICO?

FICO, originally called the Fair Isaac Corporation, was founded in 1956. They developed the FICO score, which is a measure of consumer credit risk and is the standard used today by lenders and other creditors in the United States.

What’s the Credit Score Needed to Buy a House?

In the United States, there are three major credit reporting agencies: Experian, Equifax, and TransUnion. They collect data regarding your creditworthiness. They pull data from all companies that have lent you money before, as well as public records like taxes and utility companies to see your history of making payments.

While all three of these agencies are for-profit companies, they are regulated by the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) for their compliance with the Fair Credit Reporting Act (FCRA). These bureaus do not work together, but they typically are aggregating information from the same sources. Worth noting, it’s not unusual for the agencies to have slightly different details and scores as not all vendors report to all three bureaus.

Credit scores range from 300 to 850 and are segmented into categories:

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

How do you find out your credit score? Thanks to the FCRA and FTC, every 12 months you can request a free report at AnnualCreditReport.com. This will provide you with a record of accounts from all three credit bureaus, it will not provide a credit score but will give you an idea of what is on your credit.

What Is Considered a Good Credit Score to Buy a House?

Different types of home loan programs have different credit score requirements, some of which are dependent on other qualifying factors also. The best way to find out if you qualify for one, or possibly multiple loan programs, is to work with a personal loan officer.

Below you will find a list of the most common loan types with their generally stated minimum credit score requirements (other qualifying factors may need to be met at these credit scores):

• FHA Loan: As low as 580.
• VA Loan:  As low as 580.
• USDA Loan: As low as 580.
• Conventional Loan:  As low as 620.
• Jumbo Loan: 700.

How Can I Raise My Credit Score to Buy a House?

If your credit score isn’t where you want it to be, there are a number of things you can do to improve it. This is a good idea whether you decide to buy a house or not. Your credit score is a powerful data point that is used by lenders, landlords and others.

• Pay Bills On Time: Lenders want to know that you have a history of on-time payments for all bills. This is the biggest factor toward your credit score, accounting for 35% of the total.
• Keep Credit Card Balances Low: A good rule of thumb is to keep balances at or under 30% of your available credit card limit per card. This is referred to as credit utilization and accounts for 30% of your credit score.
• Keep Credit Cards Open: Closing unused cards reduces the amount of your available credit, which can increase your credit utilization. The longevity of credit accounts is also valued and accounts for 15% of your credit score.
• Broaden Your Credit Mix: To achieve the best credit score you want credit card payments and installment loans on your credit report. This shows dependability across multiple credit line types. This accounts for 10% of your credit score.
• Don’t apply for credit too often: Applying for credit results in an inquiry, in most cases the hit is about 5 points. Additional inquiries will mean more points deducted. Read the next section on how to check your credit score to avoid getting deductions.
• Check Credit Reports for Discrepancies: Errors and mistakes in reporting can happen. It’s up to you to spot them, dispute them and have them corrected.

Track Your FICO Credit Score

Whether you have poor credit or a perfect score, it’s a good idea to pull your free yearly reports from AnnualCreditReport.com to identify mistakes or errors.

If you are actively working to improve your credit score, you’ll want to keep a closer eye on your credit score improvements. There are many free options you can use, most banks have credit score monitoring available at little to no cost for their customers. These scores will not be identical to a mortgage inquiry score it will allow you to get an idea of where your credit rating is and allow you to monitor progress.

Start by Knowing Your FICO Credit Score

Your credit score is the engine that drives the entire homebuying process. Don’t wait until you’ve found a house to investigate where you stand. Know where you stand before you start your home search and understand what you can expect. The first step is to talk with a personal loan officer about your credit score, the pre-approval process and various loan types.