You need to take care of your credit score, you need to protect it, you need to improve it. A large part of your financial life depends on it. It can even get you the mortgage that you want.
In fact, your credit score is a key factor in determining whether you will be approved for a mortgage or not. And, since this score is ever-changing, it’s really important to find out what number is good enough for you to get the mortgage of your dreams.
Your credit score
The FICO score is the most common credit score used in the United States. To calculate it, you need to look at your payment history (it represents 35% of the entire score), how much you owe (30%), credit history (15%), the type of credit you use (10%) and new credit (10%).
How your credit score fits into being approved for a mortgage
It’s important to note that your credit score is just one piece in the mortgage approval puzzle. It’s an important piece, but still just one. So you can be approved for a mortgage even though your score might be low. This happens when, for example, you have a solid down payment.
Although the FICO score is the most used, it’s good to first find out which score your lender is using. For FICO scores, a score of 850, the highest possible score, will get you anything you want. But everything between 740 and 850 can be considered excellent credit. With such a score, you will be able to get the best interest rates.
Scores between 680 and 740 are good, and will get you good interest rates, while those between 620 and 680 are acceptable. If you have an acceptable score, you may be approved for a mortgage, but your interest rates will be higher.
A score between 550 and 620 means that you have subprime credit. There’s a chance that you may get approved for a mortgage, but this is not guaranteed. And the terms will not be favorable.
If your score is between 300 and 550, you have poor credit. Borrowers will most likely want to stay as far away from you as possible. If you ever want to get a mortgage, you need to start improving your score as soon as possible.
Final word
Your credit score may not be the only thing your mortgage lenders are looking at, but it’s still very important. The better the credit score, the better the deal. So, before going out to shop for a mortgage, you might want to take a look at your score and see what you can do to improve it. Every point counts!
