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What Credit Score Do I need to Qualify for a Mortgage?

Purchasing a home is a major goal for most individuals.

Posted: 2018-08-05 | Author: Richard Simon


This means saving up a down payment, carrying as little outside debt as possible, and having enough income to pay the monthly housing and debt obligations. In addition to these, one of the most important factors in qualifying for a home mortgage is your credit score.

How is your Credit Score Calculated?

An individual’s credit score is the compilation of their payment history and related information that the major credit bureaus have. There are three major credit bureaus that maintain information on consumers; Experian, Equifax, and Transunion. The three bureaus typically do not have identical information on you. For example, one may have more details on your job history while another may have more detail on the addresses you have lived at.

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Fair Isaac Corporation publishes what is known as a FICO score for each of the three credit bureaus. These scores can vary based on the information each bureau has. There are several factors that go into calculating your FICO score, these include:

  1. Payment History (35%): The largest factor in determining your FICO score is your repayment history to creditors. Individuals with late payments, debts that were unpaid, written off, discharged through bankruptcy, and other derogatory payment information can expect these incidents to drive down their credit score.
  2. Credit Utilization (30%): The second-highest factor in calculating your credit score is the percentage of available credit you have borrowed on. The more you borrow against your available credit, the worse it is for your credit score.
  3. Credit History (15%): The length of time you have had open credit accounts, as well as the length of time since you have had any adverse incidents with any of your accounts.
  4. Credit Mix (10%): The types of credit accounts you have; e.g., auto loans, credit cards, installment loans, personal loans, etc.
  5. New Credit (10%): Opening several new credit accounts or even having several hard credit inquiries within a short period of time can drive your credit score down.

Credit scores can range from 300 to 850. Experian breaks them down into the following categories:

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

Minimum Credit Score for Various Types of Mortgages

There are many different types of home loans to choose from, and each product has its own minimum requirements. Here is the minimum FICO score needed to qualify for some of the most common loan products:

  • Conventional Mortgage: 620
  • FHA Loan: 500
  • VA Loan: No minimum, other factors considered

Having the minimum credit score is not a guarantee that you will qualify for a certain type of mortgage. Lenders look at several other factors as well, such as how much you are putting down on the property, gross monthly income, and debt-to-income (DTI) ratio.

It should also be noted that your credit score affects more than just whether or not you can qualify for a mortgage. Your score also helps determine the terms and conditions of the loan. For example, a lower FICO score might mean that you will pay a higher interest rate and come up with a larger down payment to qualify for the mortgage.

How to Improve your Credit Score

Credit scores do change over time, which is good news for those who have less than perfect credit history. Some individuals just need to build up an on-time payment history. Others may need to settle an outstanding debt that may have been written off. There are also some cases in which there is inaccurate information on your credit report.

For example, a lender may have mistakenly reported one or more of your payments as over 30 days late, which can drive down your FICO score. This is why it is important to review your credit report at least once a year and look for any errors. Americans are entitled to obtain a free copy of their credit report every 12 months. You can request your free report at annualcreditreport.com.

Speak to a Local Mortgage Expert at AZ Lending Experts

There are a lot of factors that go into qualifying for a mortgage, and one of the most important is your credit score. To find out what kind of home loan you are eligible for, it is best to speak with one of our mortgage lenders. A qualified mortgage expert can review your circumstances and determine the best strategy to get you approved for a home mortgage so you can purchase your dream home in the Phoenix market.

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