What is the Best Credit Score to Buy a House?
Contents
Find out what the best credit score is to buy a house so that you can improve your credit rating and get a lower interest rate.
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Introduction
When you’re looking to buy a new home, the first thing you need to do is figure out what kind of mortgage you can afford. But before you can get a mortgage, you’ll need to establish good credit. A high credit score will not only help you get approved for financing, but could also help you snag a lower interest rate and monthly payment.
If you’re not sure what your credit score is, or where it falls on the credit score range, you’re not alone. In fact, according to a recent survey by Experian, 29% of respondents said they didn’t know their credit scores.1
But whether your score is excellent, good, fair, or poor, there’s no need to worry—there are still plenty of options available to you when it comes to financing your new home. In this article, we’ll take a look at what the best credit score is to buy a house so that you can be better prepared for the home-buying process.
The Different Types of Credit Scores
There are many factors that go into getting approved for a mortgage, but your credit score is one of the most important. Lenders will use your credit score to determine your loan eligibility and interest rate. So, what is the best credit score to buy a house? Let’s take a look.
FICO Score
Most lenders use the FICO score when they’re making lending decisions. The score is calculated using information in your credit report. It’s based on your credit history — specifically, how you’ve handled debt in the past.
The FICO score is a three-digit number ranging from 300 to 850. The higher your score, the better. A score of 700 and above is considered good, while a score of 800 and above is considered excellent.
A low FICO score indicates to lenders that you may be a higher-risk borrower, which could lead to a higher interest rate on your loan or even getting denied for a loan altogether. If you’re not sure what your score is, you can check it for free on many websites, including Credit Karma and Credit Sesame.
VantageScore
VantageScore is the credit scoring model used by most major credit reporting bureaus in the United States, including Experian, TransUnion, and Equifax. VantageScore was created by the three major credit bureaus as a way to standardize credit scoring.
VantageScore uses a range from 300 to 850, with 850 being the best possible score. A score of 700 or above is considered good, while a score of 800 or above is considered excellent.
The VantageScore model takes into account several factors when determining your score, including:
-Payment history
-Credit utilization
-Credit mix
-Number of inquiries
-Age of credit history
Your VantageScore can increase or decrease depending on how you manage your credit. Some things that can negatively impact your score include:
-Missing payments
– maxing out your credit cards
– Applying for new credit too frequently
The Importance of Credit Scores
Your credit score plays an important role in the home buying process. It’s a three-digit number that’s used to predict how likely you are to repay debt. Lenders use credit scores when reviewing loan applications to determine whether or not the borrower is a good risk.
A high credit score indicates that you’re a low-risk borrower, which means you’re more likely to repay your debt on time. This, in turn, makes you a more attractive candidate for a loan. On the other hand, a low credit score signals that you’re a high-risk borrower, which means you’re less likely to repay your debt and more likely to default on your loan.
In general, the higher your credit score, the better chance you have of being approved for a loan with favorable terms and conditions. So, if you’re looking to buy a house, it’s important to understand what credit score is needed to buy a house.
The Relationship Between Credit Scores and Mortgage Rates
When you’re ready to buy a home, one of the first things you’ll need to do is apply for a mortgage. Your credit score will likely play a role in how much money you can borrow and the interest rate you’ll be offered.
The relationship between credit scores and mortgage rates is complex, but in general, higher credit scores tend to lead to lower interest rates. According to myFICO, the median FICO score for approvals on conventional purchase loans was 752 in August 2018. Borrowers with scores below that threshold may have difficulty qualifying for a loan or may be offered less favorable terms, such as a higher interest rate.
If you’re not sure what your credit score is, you can check it for free on sites like Credit Karma or NerdWallet. Once you know your score, you can start shopping around for mortgage offers. Be sure to compare not only interest rates but also the fees and terms of each loan. With a little research, you should be able to find a loan that’s right for you.
The Bottom Line
The bottom line is that there is no one “right” credit score to buy a house. The decision of whether or not to approve your home loan application will ultimately come down to the lender’s individual assessment of your financial situation. However, having a credit score in the good-to-excellent range (700 and above) will give you the best chance of being approved for a loan with favorable terms and conditions.
