304 North Cardinal St.
Dorchester Center, MA 02124
304 North Cardinal St.
Dorchester Center, MA 02124
A credit score is a three-digit number that lenders use to assess your creditworthiness for loans and credit cards. It gives lenders an idea of how likely you are to repay debt based on your borrowing and repayment history.
Credit scores range from 300 to 850. The higher your score, the lower risk you seem to lenders.
There are two main credit scoring models used in the U.S. – FICO Score and VantageScore. The average FICO score of Americans is 704, while the average VantageScore is 675.
Your credit score is one of the key factors mortgage lenders consider when deciding whether to approve your home loan application. It gives them insight into your past financial behavior and helps predict the likelihood that you will make timely mortgage payments.
Borrowers with higher credit scores are more likely to be approved for a mortgage and qualify for lower interest rates. According to Freddie Mac, borrowers with credit scores of 740 or above generally get approved for mortgages with lower interest rates.
On the other hand, borrowers with scores below 620 may be denied mortgages or pay higher interest rates. The reason is that lenders view them as higher risk applicants.
For every 100 points increase in your credit score, you can potentially save $1,000 per year on mortgage payments. So a higher credit score directly translates into mortgage savings.
There are a few key aspects of your credit report that affect mortgage rates the most:
Your history of making credit payments on time is one of the biggest factors impacting your mortgage rate. Late payments can drag down your score significantly.
Having no late payments can result in 50 to 100 basis points savings on your mortgage rate. Payment history accounts for 35% of your FICO score calculation.
This refers to how much of your available credit you are using. Maintaining a credit utilization ratio below 30% helps mortgage rates. Maxing out cards hurts your score.
Credit utilization makes up 30% of your FICO score.
Lenders prefer borrowers who have a long credit history spanning many years. It demonstrates experience managing credit responsibly over time.
15% of your FICO score depends on your credit history length.
The minimum credit score needed depends on the mortgage program:
Soaiming for a score of 720 or higher before applying gives you the best selection of mortgage options and the lowest interest rates.
Here are 10 proven ways to boost your credit score if you’re hoping to get approved for a mortgage:
Payment history being the biggest factor, pay all your bills by the due date.Set up autopay if needed. One late payment can drop your scores by 90-110 points.
Pay down credit card and loan balances. High utilization hurts your score. Get balances below 10% of your credit limit.
Applying for new credit before applying for a mortgage can lower your score. New inquiries and debt drag down your score.
Review reports from Equifax, Experian and TransUnion once a year to spot errors or fraudulent accounts that could be lowering your scores. Dispute any inaccuracies.
If your credit report contains mistakes like late payments marked incorrectly, get them removed by disputing the errors. This can boost your score.
Having both installment loans (car, student) and revolving credit (credit cards) demonstrates experience managing different types of credit.
Too many hard inquiries from multiple mortgage or auto loan applications can lower your score temporarily. Avoid applying for new credit needlessly.
Having longstanding credit accounts boosts your score, so avoid closing old credit card accounts.
A higher credit limit means lower utilization if you keep balances low. You can ask issuers for a higher limit.
If your credit is poor, consult a credit counselor or financial advisor for guidance on improving it for mortgage approval.
Traditional lenders make getting a mortgage with bad credit (scores below 620) challenging. Still, subprime mortgages are available if your score is at least 580.
However, you’ll pay much higher interest rates and fees. An FHA loan is an option for borrowers with lower credit scores.
But subprime mortgages come with more risks for borrowers, like:
So improving your credit score should be a priority if possible. A score of at least 620 makes regular mortgages accessible at affordable rates.
Here are some of the common mortgage programs and their credit score requirements:
Need a minimum credit score of 620. Scores above 700 get the lowest rates on conventional loans.
Require just a 580 credit score minimum. But scores above 680 get better FHA rates. Popular option for lower scores.
Offered to veterans and military families. Also have a minimum credit score requirement of 620 in most cases.
For properties in rural areas. Have flexible credit score requirements starting at 640. Prefer scores above 680.
For high-cost mortgages above conforming limits. Require excellent credit, 720+ scores.
It takes consistent effort over time to increase your credit score significantly. Generally, follow credit-boosting steps at least 6 months to a year before applying for a mortgage to allow your score to improve meaningfully.
Here is a rough timeline:
The key is not just a quick fix, but building healthy long-term credit management habits. Sustained responsible credit behavior is what raises your scores over time.
A high credit score makes homeownership affordable and accessible through lower rate mortgages. Scores above 720 earn the most favorable mortgage terms.
Consistently monitoring your credit, reducing debts, and demonstrating responsible long-term management of different credit types are key to boosting your score. This takes time and discipline, so start at least 6-12 months before applying for a mortgage.
Thoroughly inspecting your credit report for errors and disputing inaccuracies can also provide a quick boost. Seeking professional credit counseling shows commitment to constructive financial behaviors.
A holistic approach of building credit through prudent habits and diligent score monitoring prepares you for mortgage approval with the best interest rates. The effort pays off for years through significant savings on your home loan.