What Credit Score Do You Need to Buy A House?

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December 2, 2020

Buying a home is a great financial undertaking. Unless buying a home with cash, your credit score plays an important role in securing a mortgage. The score is used by lenders to determine your interest rate and how likely you are to repay the loan. What credit score do you need to buy a house? It depends, but it should be as high as possible to secure the best interest rates.

What is considered a good credit score?

Your credit score, or FICO score is a three digit number based on the information found in your credit report. The Fair Isaac Corporation unveiled this scoring system in 1989 and it has been the industry standard ever since. According to myFICO, the credit ratings breakdown is as follows:

Credit score ratings

Below 580: Poor

580 – 669: Fair

670 – 739: Good

740 – 799: Very good

800 and above: Exceptional

If your score is rated “fair,” you’ll want work on improving it before applying for a mortgage. Generally the higher the credit score, the lower your mortgage interest rate. Lower credit scores often incur higher loan interest rates as the buyer is considered more of a risk for defaulting on the loan.  

What credit score is needed to buy a house?

There isn’t a definitive answer as many financial factors are in play when getting approved for a mortgage. Lenders and banks each have their own requirements and guidelines to secure a loan. The general consensus is that a minimum score of 620 is preferred to qualify for a conventional loan. 

Can I get a mortgage with a low credit score?

If your credit score is on the low end, you still have options to purchase a home. You even may still qualify for a conventional loan if you have a credit score of 620. However, the lender may have other additional requirements in order to qualify.

If you’re a first time home buyer, look into a Federal Housing Administration (FHA) loan. These loans are a great option for those with low credit scores and low down payments. With a minimum credit score of 580, buyers can put as little as 3.5% down. Lower scores are accepted in exchange for putting 10% down. 

How to improve your credit score before buying a home

The best course of action is to be proactive. Get your credit in top shape before applying for a loan and avoid unwanted surprises and higher interest rates. 

  • Check your report for any errors: The Fair Credit Reporting Act requires credit reporting companies to provide consumers with a free credit report every 12 months. You can request your free copy here. Pay close attention to any mysterious accounts opened or clerical errors. 
  • Avoid late payments on bills: Payment history plays the biggest role in determining your credit score. Thirty-five percent of your score is based on it. Make sure all your bills are up to date and paid on time as late payments will negatively affect your score. 
  • Pay down or pay off credit card balances: Having a high debt to income ratio will also negatively impact your credit score. Pay down debt as much as possible to increase your score. However, do not close your credit cards as that will lower your credit utilization and lower your score as well. 
  • Don’t open new credit lines or loans: Each request will create a hard inquiry on your credit report and lower your score. Additionally accruing more debt will lower your score. 
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