If you're planning to buy a home, you'll need to understand the importance of your credit score. Your credit score is a three-digit number that lenders use to assess your creditworthiness. A high credit score indicates that you're a responsible borrower who is likely to repay your debts on time. A low credit score, on the other hand, could make it difficult to get approved for a loan or qualify for favorable interest rates.
While there's no magic number for a "perfect" credit score, most lenders are looking for a FICO® Score of 750 or higher. In this blog post, we'll explain what goes into a FICO® Score and how you can boost your score to get the best mortgage terms possible.
The FICO score is a number that represents your credit risk. It is used by lenders to determine whether or not you are a good candidate for a loan. The higher your score, the lower your interest rates will be. A good score is anything above 700. However, if you want to get the best interest rates, you will need a score of 750 or higher.
The FICO score was created by the Fair Isaac Corporation in 1958. It is based on information from your credit report. The five factors that are used to calculate your score are:
A FICO score is made up of five different components: payment history, amounts owed, length of credit history, credit mix, and new credit. Each component is given a certain weight in order to calculate the final score. Payment history makes up 35% of the total score, while amounts owed comprises 30%. Length of credit history, credit mix, and newcredit make up 15%, 10%, and 10% respectively
FICO scores range from 300 to 850 points—the higher the number, the lower the risk associated with lending money to that particular borrower. Anything above 700 is considered good, but if you want the best interest rates, you will need a score of 750 or higher.
There are three main types of mortgage loans available to borrowers: fixed-rate mortgages, adjustable-rate mortgages (ARMs), and government-insured mortgages.
Fixed-rate mortgages have interest rates that remain the same for the life of the loan, meaning your monthly payments will never change. ARMs have interest rates that can adjust periodically, typically in relation to an index, and usually have a maximum rate they can reach over the life of the loan. Government-insured mortgages are backed by either the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA), and tend to have more flexible eligibility requirements than conventional loans.
The minimum credit score needed for a mortgage depends on the type of loan you’re applying for as well as other factors, such as your payment history and employment history.
For a conventional loan, you’ll typically need a credit score of at least 620, although some lenders may require a higher score. For an FHA loan, you’ll only need a 580 credit score if you have at least 3.5% to put down on the home; if not, you’ll need a higher score around 620-. VA loans don’t typically require any minimum credit score but instead focus on things like your employment history and debt-to-income ratio.
If you're looking to boost your credit score, there are a few key steps you can take. First, check your credit report for errors. Second, make timely payments on all of your bills and debts. Third, use credit cards responsibly by paying off your balance in full each month and only using a small portion of your available credit limit. Finally, limit your applications for new credit. By following these steps, you can improve your credit score and get closer to that 750 FICO goal.