Typically, credit scores range anywhere from 300 to 850. A credit score above 620 is considered “good.” However, a good score won’t give you the best rates. If you want the best rates, you’re going to have to have an excellent credit score, or else you’re going to qualify for the standardized rates. If you have a low credit score, you’re considered a risk to lenders. In general, most lenders want a credit score of at least 640 for an FHA mortgage and at least 660 for a conventional mortgage. This varies greatly, however, and it's not uncommon for FHA lenders to dip below 600 for approval if other compensating factors exist for the borrower.
Let’s delve into what each credit score means:
If your middle or average credit score is below 620, you represent a high risk to lenders. Because of this, many lenders will not approve you for a mortgage loan. If you are being considered for a loan with a credit score this low, you will have to provide additional documentation and will have to have supplemental, overriding factors such as high income or high down payment. Even then, the loan is not guaranteed due to the credit score being so low. In addition, you will end up paying interest rates that are extremely high.
If your credit score is above 620, it is technically considered “good.” However, it is not excellent. With a “good” credit score, you will qualify for standardized rates but will not receive the best optimal rates.
Credit scores upwards of 680 can technically be considered “excellent.” If you have excellent credit, you will be given the best rates and may not even have to offer documentation to obtain your mortgage loan.
Tip: You should regularly review your credit reports to make sure that there are no errors. Any foreclosures, judgments, collections, bankruptcies or accounts with payments over 30 days late will reduce your credit score. If you spot a mistake, you will want to submit that mistake to the credit agency right away so your credit score can be fixed in a timely manner!
Your credit score can be affected by your payment history, new credit lines opened, outstanding debt balances, types of credit used, and the length of your credit history. The calculation of your score is heavily weighed against your payment history and outstanding debts that are owed. This suggests that you must keep all of your debt payments current and try to maintain a low balance-to-credit-limit ratio.
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