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Credit can be a vexing topic for even the most financially savvy consumers. Most people understand that good credit history can improve your chances of qualifying for a loan because it shows the lender you’re likely to repay it.

However, understanding the meaning of your score, how it’s calculated, how it can influence your mortgage eligibility – and the interest rates you pay – is not as easy as it sounds. Below, we break down all of these topics.

Explaining Your Credit Score

The FICO credit score (created by the Fair Isaac Corporation) is one of the most common scores used by lenders to determine your credit worthiness. It’s a component of pricing for the interest rates and fees you’ll pay to get your mortgage.

While exact scoring models may vary by lender, some variation of the standard FICO score is often used as a base. FICO takes different variables on your credit report, such as those listed below, from the three major credit bureaus (Equifax, Experian and TransUnion) to compile your score. Those range from 300 – 850. From this information, they compile a score based on the following factors:

  • Payment history (35%)
  • Amount owed (30%)
  • Length of credit history (15%)
  • Types of credit (10%)
  • New credit (10%)

Payment History

Roughly 35% of your credit score is based on your history of timely payments on your debt. If you’ve made your payments on time and in full in the past, there’s a good chance you’ll do the same in the future, so your credit score may be higher. If you’ve had tax liens, late payments, lawsuits or bankruptcies, they can result in a lower credit score.

Amount Owed

Roughly 30% of your score is based on the amount of money you owe. Higher balances tend to lower your credit score, while lower balances can positively impact it.

Length of Credit History

About 15% of your score is calculated on the length of your credit history. Typically, the longer you’ve had open credit accounts, the higher your score can be.

Lacking credit history may not hurt you when it comes to FHA and VA loans, but good credit history is essential when applying for a conventional loan.

Types of Credit

Types of credit determine about 10% of your credit score. This refers to the variety of types on your report, including revolving debt like credit cards and retailer cards as well as installment debt like student loans, auto loans or mortgages. Having a mix of installment and revolving debt can help prove you can handle different types of payments.

New Credit

About 10% of your score is determined by new lines of credit. Opening multiple lines of new credit too quickly can negatively impact your credit score, as it may look like you’re desperate for credit. Asking for multiple lines of credit and receiving multiple credit inquiries also has the potential to hurt your score, even if you don’t end up opening new accounts.

Note that there are two types of credit inquiries – one for lending purposes and one for educational reasons. Inquiries for lending purposes may ding your credit score by a few points. However, getting your credit pulled by a company like Rocket HQ, which shows you your report and score for educational purposes, won’t impact your score.

If you’re shopping around for the best rate or loan terms, don’t worry. Multiple credit inquiries over a short period of time for the same type of loan will be grouped together as one inquiry, so your score won’t be as heavily influenced.

What is the Average Credit Score in the U.S.?

So how does your credit score stack up against others? The average credit score in the United States was 699 in April 2016, according to Experian’s seventh annual State of Credit report. This is a record-high for Americans.

What Credit Score is Needed to Buy a House?

You may be wondering what credit score you need to buy a house. Unfortunately, you may not find an exact answer. There are several factors that go into qualifying for a mortgage besides your credit score. This includes the type of loan you’re applying for as well as your income and debt levels. Because of this, there isn’t an exact number you need to qualify. Some guidelines, however, are listed below:

  • Conventional Mortgage: 620
  • FHA Mortgage: 580
  • Veteran Affairs (VA) Mortgage: While the VA does not have a minimum credit score requirement, Quicken Loans requires a 620 credit score on all VA loans

It’s not only the minimums that matter. A higher credit score will generally qualify you for a lower rate on your mortgage, saving you money.

Conventional Mortgages

Conventional mortgages are home loans that follow the standards set by Fannie Mae and Freddie Mac. They’re uninsured by the government and known for lower down payments and good interest rates. These are typically best for those with good or excellent credit, as these loans require a higher credit score than an FHA loan.

These loans tend to offer the most competitive interest rates and flexible repayment periods, such as 15- and 30-year mortgage terms. While you may pay more money up front, you can save more money over the course of a conventional loan than you would with an FHA loan.

Minimum Credit Score for Conventional Loans

At Quicken Loans, your credit score for a conventional loan must be 620 or higher. Various lenders have different requirements and may require a different score.

FHA Loans

Backed by the Federal Housing Administration, FHA loans are insured by the government, making them easier to qualify for than conventional loans. They offer down payments as low as 3.5% and low-equity refinances, which allow you to refinance up to 97.75% of your home’s value.

FHA loans can benefit borrowers with lower credit scores or those who spend a significant portion of their income on housing. Current homeowners who are underwater on their mortgage – and could lower their monthly payment by refinancing – may also benefit from an FHA loan.

Minimum Credit Score for FHA Loans

The minimum FICO score for an FHA loan through Quicken Loans is 580, with a 3.5% minimum down payment. Other lenders may have different requirements.

For a standard FHA loan, a minimum of one credit score is required to qualify. If your lender obtains all three of your credit scores, they’ll use the middle score for consideration. If you apply for a mortgage with your spouse, lenders will use the lower of the two middle credit scores.

Better Credit Scores Lead to Greater Odds of Getting Approved

It’s important to know your credit score and understand what impacts it before you begin the mortgage process. Once you understand this information, you can begin to positively impact your credit score or maintain it so you can give yourself the best chance of qualifying for a mortgage.

It is possible to qualify for a mortgage with a relatively lower credit score but with high income and low levels of debt. It’s also possible to be turned down for a mortgage if your score is relatively higher, but you have high levels of debt and a lower income. Credit score requirements should be used as a guideline, as debt levels, income and down payments will also be taken into consideration when determining your mortgage eligibility.

Are you ready to start the mortgage process? Contact a Home Loan Expert to get started!

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This Post Has 171 Comments

  1. I have always had a good credit rating until the last recent years. My father died 4 years ago and left my Mom with no money and bare bones SSI. I have always helped out but the pressure ramped up after his death and the subsequent loss of health of my mother. I started making trips to FL to help out from my home in VA. These trips became more and more frequent up to her death in the fall of 2019. I hadn’t realized what I had undertaken and got caught up in what would be my undoing financially. At one point I flew down there as an emergency effort to get her the help she desperately needed as a UTI took her mind and bent it every way but up. I was hoping to be there for 4 days and found myself there for 4weeks. Making one futile phone call and meeting after another to get her help. I had to take matters into my hands. I was appalled at the apathy that I met. Did I mention that I have been self employed at my small business for 35 years? If I don’t work I don’t get paid. If you understand this then you’ll understand the spiral downwards that I had entered. I finally got the medical care she desperately needed and found a facility to care for her (although the correct term would be to ‘house her at’). I began making monthly visits to her to rescue her from this nightmare and to help care for her at her home. I will forever love my Mom and don’t regret the fallout I’ve lived through because of my devotion to her. My business and income were brought to its knees when I slashed my work schedule in half. Though I spent her last 2 weeks by her side I spent the last few months of her life divided. I stayed with her for 5 days then drove home over the weekend then I worked 5days the drive back to her over the weekend and stayed and helped her for 5days. Over and over until she made a trip to the ER and fell in their bathroom and ended up in hospice care at this hospital. She was 100% there mentally and I couldn’t bleaker her side. In fact I promised her that if I could get her back on her feet she could go home and come what may I would never again leave her side. We had our plan and we were happy with it. Then she died. I have struggled and I’m determined to make it but I just haven’t yet been able to regain my footing financially. I am making payments on everything. They are just late and I have applied for hardship programs that will last a year. I now have no credit and I can’t even look at my score which I’m sure falls every month. I am the same person who has always worked hard at keeping my life together and at paying my bills but now I’m a credit risk. Again I do not regret my actions and time with my Mom. That lack of regret does not discount my feelings of depression and hopelessness that have mounted on top of the despair I feel over losing the sweetest woman I’ve ever met. That depression and hopelessness draw from my knowledge of the system that is hard cold and immune to the forces of love and devotion. Bottom line I have always worked hard and always will despite my advancing age and I will pay my bills. My question is will I ever overcome what is now a permanent ding (no dent!) in my credit score or is the only way out the path my Mom had to take?

    1. Hi Tina:

      That’s an incredibly difficult situation and I can’t begin to imagine what you’ve gone through. However, you shouldn’t have to suffer forever based on devotion to your mother. I think the best advice I can give you at this point is to look for a nonprofit financial counseling service in your area. They would be able to look into your situation in great detail and help you make the strategic decisions that are right for you so you will eventually regain stable financial footing. I wish you luck. Keep your head up. There’s a light at the end of the tunnel.

    1. Hi Tanya:

      The most likely scenario may be the fact that you don’t actually have credit. This is a very common misconception. Making payments on a debit card or having them taken out of your checking account is not having credit. Having credit would be taking out a small personal loan for the purpose of credit building that’s offered by some lenders or taking out a secured card that’s backed by your own money to begin with. Making payments on these items shows lenders that you can handle loans and credit responsibly and will help you raise your score in order to get ready to qualify for having a mortgage. This is a much deeper topic, but I recommend that you start to build credit using the tips here. Then you can keep an eye on your credit with weekly reports from our friends at Rocket HQ℠. I hope this helps!

    1. Hi Chelsea:

      I’m going to go ahead and give you a few resources you might find helpful! For first-time home buyers we have Zing University. This is an interactive course that walks you through the home buying process. If you’re looking to get your credit in shape, I also recommend Rocket HQ®. This allows you to view your VantageScore® 3.0 credit score and report each week through TransUnion®. You’ll get personalized tips on how to improve your credit based on the information in the report. There are also a variety of educational resources available at the site. When you’re ready to get started, you can do so online through Rocket Mortgage® by Quicken Loans or give one of our Home Loan Experts a call at (888) 980-6716. I hope this helps! Have a wonderful day!

    1. Hi Za:

      We might be able to help you, but I’m not sure what you need help with. If you’re interested in improving your credit, I recommend starting with our friends at Rocket HQ℠. If you would like to look into your mortgage options, you can get started online with Rocket Mortgage® or give one of our Home Loan Experts a call at (888) 980-6716. I hope this helps!

  2. please contact me by email and I will get back to you I still have to find the property we wish to purchase really looking for a cheap single family home is first choice next would be a town house ,loft,apartment ,condo ,tree house

    1. Hi Patrice:

      I’m going to recommend our friends at Rocket Homes in order to help you find a house you’re looking for in your budget range. It’s also a good idea to get a mortgage approval ahead of time because it makes your offer look that much stronger. You can get started online with Rocket Mortgage or give one of our Home Loan Experts a call at (888) 980-6716. Have a great day!

  3. Thank you for all of this!!
    Sometime we feel scare well in my cases as a first time buyer it feels scary to jump into this situation but everything that i just read from you guys calmed me down.

    Thank you!

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