When it comes to buying a home, most people need a mortgage to finance the purchase. Mortgage lenders want to ensure that they are lending money to responsible borrowers who are likely to repay the loan. One of the most important factors that lenders consider is the borrower’s credit score. But what credit score is most commonly used by mortgage lenders?
The FICO Score
The most commonly used credit score by mortgage lenders is the FICO score. FICO stands for Fair Isaac Corporation, the company that created the scoring model. The FICO score ranges from 300 to 850, with higher scores indicating better creditworthiness.
The FICO score takes into account several factors, including payment history, amounts owed, length of credit history, new credit, and types of credit used. Payment history and amounts owed are the most heavily weighted factors, making up 35% and 30% of the score, respectively.
Minimum Credit Score Requirements
Each lender has its own minimum credit score requirements, but most require a FICO score of at least 620 to qualify for a conventional mortgage. Borrowers with a score below 620 may still be able to obtain a mortgage, but they will likely have to pay a higher interest rate and provide a larger down payment.
For government-backed mortgages, such as FHA and VA loans, the minimum credit score requirements are generally lower than for conventional mortgages. For example, the minimum credit score requirement for an FHA loan is 580, although some lenders may require a higher score.
Improving Your Credit Score
If your credit score is lower than you would like, there are several things you can do to improve it. First, make sure that you are making all of your payments on time. Late payments can have a significant negative impact on your credit score.
Second, pay down your credit card balances. The amounts owed factor of the FICO score takes into account both the total amount owed and the credit utilization rate, which is the percentage of available credit that you are using. Keeping your credit utilization rate below 30% can help improve your score.
Third, avoid opening new credit accounts unless you really need them. Each new account can lower the average age of your credit accounts, which can negatively impact your score.
Conclusion
The FICO score is the most commonly used credit score by mortgage lenders. Most lenders require a minimum score of 620 for a conventional mortgage, although government-backed loans may have lower requirements. If your score is lower than you would like, there are several things you can do to improve it, including making all of your payments on time, paying down your credit card balances, and avoiding opening new credit accounts unless necessary.