What Is a Good FICO Score for a Home Loan and How to Improve It

A good FICO score for a home loan is crucial, as it determines the interest rate you'll qualify for and whether you'll be approved for a loan in the first place. Typically, a score of 760 or higher is considered excellent, while 700-759 is good, 680-699 is fair, and below 680 is poor.

A FICO score is calculated based on five factors: payment history (35%), credit utilization (30%), length of credit history (15%), credit mix (10%), and new credit (10%). If you have a good credit mix, with a mix of credit types, it can positively impact your score.

To improve your FICO score, focus on paying bills on time, keeping credit utilization below 30%, and avoiding new credit inquiries.

Here's an interesting read: Fico 8 Bankcard Score

A good FICO score for a home loan is considered to be 670 to 739, which is the same good credit score range for FICO's base scores. This score range can make achieving your goals easier, like qualifying for a mortgage or getting a better interest rate.

The difference between a good FICO score and a lower score can be significant, with a 620 FICO Score resulting in a 7.71% interest rate on a 30-year fixed-rate mortgage, compared to a 6.69% interest rate for an 840 FICO Score.

Here's a comparison of average mortgage rates based on FICO score:

A good FICO score is essential for a home loan, and understanding the basics can help you achieve your goal. The base FICO Scores range from 300 to 850.

The good credit score range is 670 to 739, and it's considered very good or exceptional above that. FICO creates different types of consumer credit scores, including industry-specific credit scores for credit card issuers and auto lenders.

These industry-specific credit scores have a different range, but a "good" score is still 670 to 739. Your credit score can change for many reasons, and it's not uncommon for scores to move up or down throughout the month.

Here are some reasons why your credit score might increase:

However, some actions might have an unexpected impact on your credit scores. Paying off a loan, for example, could lead to a score drop even though it's a positive action in terms of responsible money management.

A good FICO score matters because it can make achieving your goals easier. It's the difference between qualifying or being denied for an important loan, such as a home mortgage or car loan.

Having a good credit score can directly impact how much you'll have to pay in interest or fees if you're approved. For example, the difference between taking out a 30-year, fixed-rate $350,000 mortgage with a 620 FICO Score and a 700 FICO Score could be $138.58 a month.

This may not seem like a lot, but over the lifetime of the loan, having the better score would save you $49,889 in interest payments. That's extra money you could be putting toward your savings or other financial goals.

Related reading: Whats a Good Interest Rate on a Student Loan

A good credit score can also impact non-lending decisions, such as whether a landlord will agree to rent you an apartment. Your credit reports can also impact you in other ways, like affecting your insurance premiums for auto, home, and life insurance.

Here's a breakdown of how different FICO scores can affect your mortgage rates:

Your credit score can change for many reasons, and it's not uncommon for scores to move up or down throughout the month as new information gets added to your credit reports.

FICO Scores range from 300 to 850, and a good credit score is considered to be between 670 and 739.

FICO considers multiple factors when determining your credit score, but it doesn't release the exact percentage breakdown used for each category.

The factors FICO considers are payment history, credit usage, length of credit history, types of accounts, and recent activity, but the relative importance of these categories can vary depending on your unique credit report.

Here are the factors FICO considers, listed in the order of their general importance:

FICO's industry-specific credit scores have a different range, from 250 to 900, but a good score is still considered to be between 670 and 739.

FICO Score Factors are a crucial aspect of determining your credit score. FICO uses percentages to represent how important each category generally is, but the exact percentage breakdown used to determine your credit score will depend on your unique credit report.

FICO considers scoring factors in the following order: payment history, credit age, total credit usage, credit mix and experience, new accounts opened, and public records. However, the exact importance of each category can vary from person to person.

A good FICO score is considered to be between 661 and 780, which is the same range as the base FICO Scores. However, the exact score you need to achieve a good credit score can depend on various factors.

Here's a breakdown of the FICO Score Factors:

Keep in mind that the importance of each factor can vary depending on your individual credit report.

Payment history is not considered when a credit account is new and has no reported payments.

A FICO score is not affected by a credit account that is paid in full.

Public records, such as tax liens and bankruptcies, can significantly lower a FICO score.

Utility payments, such as rent and electricity, are not included in a FICO score.

Credit inquiries from credit card applications and other loan requests can temporarily lower a FICO score.

Monitoring your credit report regularly can help you understand your credit score and make improvements to save money on interest. You can check your FICO Score and credit report for free from Experian with daily updates and real-time alerts for suspicious changes in your report.

Regularly monitoring your credit report can also help you identify areas for improvement, such as errors or negative marks that can be disputed. A free account from Experian also offers free credit-building features, like Experian Boost, and insights into your credit history and score.

To get a full picture of your credit report, visit AnnualCreditReport.com, where you can access your full report for free once per year from each of the three major credit bureaus—Equifax, Experian, and TransUnion.

A good FICO score for a home loan can vary depending on the type of loan you're applying for. For a conventional loan, a FICO score of 620 or better is typically required, and with a score of 760 or higher, you should qualify for the best interest rates.

If you have a lower credit score, there are still options available. For example, the Federal Housing Administration (FHA) offers loans with a minimum credit score of 500 if you make a 10% down payment, and 580 if you put down less than that.

Here are some general guidelines for different types of home loans and their required credit scores:

Keep in mind that while meeting the minimum credit score requirement can help you get approved, it may not be enough to make your monthly payment affordable.

Conventional loans are the most common type of mortgage, making up about 70% of all mortgages.

A conventional loan is a mortgage that's not insured by a government agency, and most conventional loans are backed by mortgage companies Fannie Mae and Freddie Mac.

To qualify for a conventional loan, you typically need a minimum credit score of 620. However, lenders can raise their own requirements, so it's best to check with your lender for their specific standards.

A low debt-to-income ratio is also important for conventional loans, with lenders usually looking for a ratio of 43% or less. This measures how much of your monthly income goes toward debt expenses.

Here's a breakdown of the average mortgage rate by FICO score range for conventional loans, as of mid-July 2024:

Borrowers with higher credit scores tend to take out larger loans, with an average mortgage balance of $256,897 for those with a FICO score of 800-850, as of September 2023.

FHA loans are a popular option for homebuyers with less-than-perfect credit. They require smaller down payments than other types of mortgages.

One of the key benefits of FHA loans is that you may qualify with a credit score as low as 500, as long as you put down at least 10%. This is a lower credit score requirement than many other loan types.

If you have a credit score of 580 or better, you can put down as little as 3.5% and still qualify for an FHA loan. This can be a huge advantage for homebuyers who don't have a lot of savings for a down payment.

Here's a summary of the credit score and down payment requirements for FHA loans:

By understanding the requirements for FHA loans, you can make an informed decision about whether this option is right for you.

USDA Loans are a great option for those looking to purchase a home in rural areas, and they have some flexible eligibility requirements.

Borrowers typically need a credit score of at least 640 for the direct loan, while the guaranteed loan requires a score of at least 680.

USDA Loans are insured by the U.S. Department of Agriculture, and lenders may require a credit score of at least 580 to 620 to qualify.

These loans are meant for low- and moderate-income homebuyers, and the USDA doesn't set a minimum credit score requirement, though most lenders will want borrowers to have at least a 620.

USDA Loans are a great option for those looking to purchase a home in a designated rural or suburban area, and they can be a good choice for those with lower credit scores.

A different take: How Is Home Loan Amount Determined

Jumbo loans are a type of conventional loan that exceed the limits set by the Federal Housing Finance Agency. They can't be insured by FHA or bought by Fannie Mae or Freddie Mac.

Lenders require a higher credit score for jumbo loans, typically a 700 or higher. This is because they're taking on more risk by lending a larger amount of money.

Requiring a 700 credit score for jumbo loans is standard practice among lenders. This helps to mitigate the increased risk associated with these larger loans.

Your credit score plays a significant role in determining the interest rate you'll qualify for on a home loan.

A higher credit score can lead to lower interest rates, making your monthly payments more manageable. For example, a borrower with a credit score between 760 and 850 can expect an average interest rate of 6.237% on a 30-year fixed mortgage.

Borrowers with higher credit scores tend to take out larger loans, with an average mortgage balance of $256,897 for those with a score between 800 and 850.

Here's a breakdown of the average interest rates for different FICO score ranges:

Improving your credit score before applying for a mortgage can help you qualify for better interest rates and save thousands of dollars in interest payments over the life of the loan.

Readers also liked: Interest Only Home Mortgage Loans

Making at least your minimum payment on time can help improve your credit score. Even a single payment that's 30 days past due can hurt your credit score, and the late payment will stay on your credit report for up to seven years.

Explore further: Usda Mortgage down Payment

Keeping your credit card balances low is crucial. Your credit utilization rate is an important scoring factor that compares the balances and credit limits of revolving accounts, and a low credit utilization rate can help your credit score.

Opening accounts that will be reported to the credit bureaus can thicken your credit file and make qualifying for credit easier. A mix of open installment and revolving accounts can also improve your scores.

Applying for credit when you need it is better than applying for many different types of loans or credit cards during a short period. This can lead to a hard inquiry, which may hurt your credit score a little.

Reviewing your credit reports regularly can help you catch inaccuracies or fraudulent accounts that might be hurting your credit score. You have the right to dispute errors and have the creditor or credit bureau investigate.

Here are some key factors to keep in mind:

By following these steps, you can improve your FICO score and increase your chances of getting approved for a home loan.