Could you buy a house today if you wanted to? The answer largely depends on one critical factor: your credit score. This key number can significantly influence your mortgage eligibility and may even affect how much of a down payment you’ll need. Factors like the type of mortgage loan and the location of the property also play a role, but a strong credit score can make the home-buying process much smoother.
When it comes to securing a mortgage, understanding the minimum credit score needed to buy a house is essential. Your credit score determines not only if you qualify for a loan but also what terms you’ll receive. In this guide, we’ll explore the specifics of the minimum credit score to buy a house and help you assess whether your score meets the standard. Curious if your score is high enough? We’ll provide the insights you need to navigate the home-buying process effectively.
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Your credit score doesn’t just influence your borrowing ability — it also affects your interest rate. Michael Simpkins, a seasoned real estate agent in Apollo, Florida with more than two decades of experience, says: “There are credit score levels that lenders have set. Depending on who they’re working with, a credit score could change the interest rate because it changes the risk.” If you’re looking to buy a house and have concerns about your credit score, read on to discover everything you need to know about the minimum credit score to buy a house and how to make sure you’re in a strong position.
What is a credit score?
What exactly is a credit score? It’s a crucial number that encapsulates your entire financial history, reflecting everything from your early decisions, like opening a checking account, to more recent actions, such as paying a bill late. Your credit score provides a snapshot of your financial behavior over time, showcasing your ability to manage and maintain credit effectively — or revealing areas where you might have struggled.
There are three major credit bureaus — Experian, TransUnion, and Equifax — that track and report your credit information. Each bureau collects data from different sources, which can lead to slight variations in your credit score across the bureaus. Not all creditors report your financial behavior to all three agencies, which means that negative information might not be equally reflected across all of them.
To address these discrepancies, lenders often use the FICO score, developed by the Fair Isaac Corporation. The FICO score combines data from all three bureaus into a single, standardized measure, offering a more consistent and reliable assessment of your creditworthiness. This uniform approach helps lenders make more informed decisions when evaluating your loan or credit applications.
Joe Tafolla, a top-rated mortgage broker in the Seattle area, tells buyers, “Credit scores are important to lenders because they are directly correlated with the likelihood of the buyer being able to follow through with the commitment of repayment.”
Credit and FICO scores range from 300 to 850, with higher scores indicating better credit. Here are the typical score ranges:
- Less than 580 – poor
- 580 to 669 – fair
- 679 to 739 – good
- 740 to 799 – very good
- 800 to 850 – excellent
If you’re looking to buy a house but have a low credit score, understanding how to improve it is essential. Certain factors have a greater effect on your score than others. By identifying what matters most, you can target effective solutions and focus your efforts on areas that will make the biggest difference.
What factors affect your credit score?
According to FICO, your payment history makes up 35% of your score, so if your cable company reported that late payment, it hurt you. The best thing you can do now is plan to pay everything on time going forward.
Credit use is the next-biggest factor. This refers to the percentage of your available credit that you’re currently using. For example, if you have a credit card with a $15,000 limit and you’ve charged $7,500 to it, your credit use is 50%. FICO calculates this ratio across all your credit accounts, and a high use can negatively affect your score.
“Some people may have perfect payment history but have maxed out their cards and thus the credit score is suffering,” Tafolla says. “Those are the scores that are easy to fix. Once the balances are paid down, the scores pop up quickly.” Credit use could be your biggest negative, and paying down balances could give your score the boost it needs.
The length of your credit history accounts for 15% of your score, and it’s something you can’t alter. Generally, the longer you’ve had open accounts, the better your score. While you can’t go back and open accounts from earlier in life, it’s important to keep your older accounts open. Closing them can negatively affect your score, especially if they are removed from your credit report.
The mix of credit types you have makes up 10% of your score. Lenders view different types of credit differently: A credit card, which typically is unsecured, is treated differently from an auto loan, which is backed by physical property. Having too much unsecured debt can lower your score, but having no debt at all can also negatively affect it. Balancing various types of credit is key to maintaining a healthy score.
Lenders want to see how you manage debt, so relying solely on cash for purchases might result in a lower credit score. It might seem counterintuitive, but opening a credit card, making charges, and then paying off the balance can actually improve your credit standing.
The last 10% of your FICO score consists of new inquiries. Every time you apply for a new credit card or auto loan, it shows on your report as a credit inquiry. Why? Because if you’ve been running around town opening up new accounts, it tells lenders that you might be having money issues. It’s a red flag for them — which is why you should avoid buying a new car or applying for a new card when you’re also home shopping.
English (US) · 