What types of credit scores qualify for a mortgage?

Your credit score is of primary importance to lenders. By understanding what’s involved, you can know what to expect when you apply for a mortgage.

Tags: Credit, Mortgage, Credit score
Published: April 05, 2018

If you have a good credit score, you’ll have access to more lenders, more loan options and lower rates when shopping for a mortgage. So, yes, the type of credit score you have matters.

Why? Your history of paying bills on time and your monthly debts determine your credit score. In short, it is a quick way for lenders to see if you’re likely to pay your future bills. If lenders see you as very likely to repay, you will be offered more favorable loan terms.

 

How does your score work?

Your credit score (also called a FICO Score) can range from 300 (lowest) to 850 (highest). A score of 740 or above is generally considered “very good.”

There are three national credit bureaus (Equifax, Experian and TransUnion) that maintain credit reports. FICO summarizes the results into three FICO scores, one for each bureau. Usually, the three scores are similar, but they may differ based on the different information collected by each credit bureau.

 

What if you have a low credit score?

While there isn't a minimum credit score required for a mortgage, you may want to begin maximizing your score now, before starting the home-buying process. Also know that government-backed mortgages like FHA loans typically have lower credit requirements than conventional fixed-rate loans and adjustable rate mortgages (ARMs).

 

Finding out your credit score

For a fee, FICO will provide you with your credit scores upon request. By law, you can also get one free copy of your credit report from each credit bureau every 12 months via annualcreditreport.com.

 

What's in your credit report?

Debts such as credit cards, auto loans, student and personal loans automatically show up in your credit reports. Creditors decide whether or not to report late payments. If you're late, you can call the organization to ask about their policies and whether your payment was reported.

 

What if there’s an error?

You're allowed to dispute information in the reports if it was recorded incorrectly, so it's a good idea to check your credit reports regularly for errors — especially if you're planning a major purchase like a house.

 

Maintaining good credit

Paying your bills on time as a matter of habit is the best way to ensure your credit remains healthy. Many creditors report after 30 days past due, while others wait as long as 90 days. Healthcare providers usually don't report until much later, if at all.

 

A word of caution

Each time you apply for a loan or credit card, it gets reported to the credit bureaus. When lenders see multiple applications reported in a short period of time, it can discourage them from giving you a loan. So, try to avoid opening new credit cards or refinancing your car during the same period that you’re applying for a mortgage.

 

How to get a mortgage: What else affects your rate?

Your credit score is only one factor in getting a mortgage. When thinking about how to get a mortgage, realize that lenders also consider your income, employment history, current monthly debts, size of the loan and the amount of your down payment.

 

To learn more about what you can afford, try our home affordability calculator. To learn more about the importance of a good credit score, keep reading.

 

Mortgage and Home Equity products are offered by U.S. Bank National Association. Loan products are offered by U.S. Bank National Association and subject to normal credit approval.