People with a 720 credit score can expect to receive favorable terms on a home loan.
Everyone talks about the value of good credit scores and whether you need a high credit score to buy a home. This leads some people to ask, “How much of a home loan can I get with a 720 credit score?”
People with that score can expect to secure a favorable home loan. “A credit score of 720 is generally considered excellent and significantly increases your chances of being approved for a home loan,” says Jose Garcia, president and CEO of Northwest Community Credit Union. “Borrowers with a 720 credit score often secure favorable interest rates and terms, as lenders view them as low-risk.”
This article details the benefits of a 720 credit score while seeking to buy a home.
720 Credit Score: Is It Good or Bad?
Fair Isaac Corp (NYSE: FICO) created the range of credit scores in 1989, and the system is used by all three major credit bureaus today. FICO Credit scores range from 300 to 850. A high credit score indicates a higher probability that loans will be paid back on time and in full.
Experian, one of the three bureaus, rates credit scores as follows:
| Poor Credit | 300 to 579 |
| Fair Credit | 580 to 669 |
| Good Credit | 670 to 739 |
| Very Good Credit | 740 to 799 |
| Excellent Credit | 800 to 850 |
Therefore, a 720 credit score falls within the “Good credit” range and is slightly above the average credit score of 715. A 750 credit score would be considered “Very good credit,” and a 650 would be considered “Fair credit.” The lowest possible credit score is 300.
A 720 credit score should enable you to get lower interest rates on mortgages and other loans, connect utilities without leaving a deposit or procure a rental without much trouble. Remember that a 720 credit score that has fallen from 750 or higher might indicate a recent missed payment or other credit problems. Therefore, a rising score is better than a falling score.
How Credit Scores Affect Mortgage Rates
Lenders often look at factors other than credit scores. The five Cs of credit are:
- Credit history: A long-term list of your loans, credit cards and other payments made
- Capacity: Income and employment history to indicate the ability to repay a loan
- Collateral: The value of your home and any equity is assessed
- Capital: The savings, investments and other assets available to help repay a loan
- Conditions: The purpose of a loan or other environmental and economic conditions
To qualify for a conventional mortgage, the minimum credit score required is 620, but some lenders require 660 or higher. A 760 score or above will qualify you for the lowest interest rates. A 20% down payment is standard on a conventional mortgage, but if your score is above 720, that requirement may drop to 15%.
Remember that a 20% down payment prevents the lender from requiring private mortgage insurance (PMI), saving you $30-$70 a month for every $100,000 borrowed. That adds up when median home prices were over $400,000 in 2024.
Conventional mortgages are subject to “risk-based pricing,” meaning your credit score is factored into your interest rate and any fees. Your rate and fees are based on the estimated risk of default historically common among various credit scores.
What is a Good Credit Score for Buying a House?
There isn’t one single good credit score for buying a house because credit scores are used alongside other parameters, such as the amount of down payment, type of loan, income, assets and debt-to-income ratio (DTI).
For example, on an FHA (Federal Housing Administration) loan, the minimum credit score to qualify with a 3.5% down payment is 580. If you put down at least 10%, a 500 credit score is sufficient to get a loan. However, any score below 580 will increase the interest rate substantially.
A credit score of 760 or higher will achieve the best interest rates and fees, but your down payment amount also matters. Borrowers with more “skin in the game” (larger down payments) have a lower default rate than those with smaller down payments.
There is no minimum credit score for a VA loan, but most lenders require a 620 credit score or better. The advantages of a VA loan are that no down payment is required, and DTI ratio requirements are more lenient than those of FHA. However, credit score and DTI aside, there are additional service time requirements that borrowers must fulfill.
Can I Get a Mortgage With a 720 Credit Score?
Yes, you can certainly get a mortgage with a 720 credit score. The four types of mortgage loans are Conventional, FHA, VA and USDA. The first three have already been discussed.
The USDA (United States Department of Agriculture) loan is similar to a VA loan in that it does not require a down payment. It is a government-backed mortgage that helps low-to moderate-income persons buy a home in rural areas. However, homes in large cities and densely populated suburban areas do not qualify. The home being purchased must be in an area below 35,000 residents to qualify for a USDA loan.
A USDA loan has no minimum credit score, but most lenders prefer 620 or higher. Another advantage, besides zero money down, is that USDA loans have lower interest rates than other loan programs.
How Does My Income Impact Home Loan Eligibility With a 720 Score?
On a USDA loan, the income limit for a household of 1-4 persons in most locations is $112,450. For households of 5-8 persons, the income limit rises to $148,450. Therefore, someone with a 720 score who makes $175,000 annually would not qualify for a USDA loan.
None of the other loan types have income limits, but if there is insufficient income to afford a loan or the DTI (debt-to-income) ratio is too high, the loan may be denied or interest rates may be higher. DTI maximums generally range from 41% to 46%, but some lenders will go up to 50% or 55% with larger down payments.
The stability of income is also important. Lenders prefer those with steady paychecks over individuals with highly variable income, as fluctuations could affect the ability to make regular loan payments on time. However, if there is a proven history of earning variable income for over two years, many lenders will accept it without penalizing the borrower.
How To Improve My Credit Score
The higher your credit score, the lower the interest rates and fees. Therefore, the higher your credit score, the less expensive your monthly payments will be. Improving your credit score is especially beneficial if you plan on buying a home within the next year or two. That’s how long it can take to improve your credit score. The best ways to improve your credit score are:
- Pay your bills on time. Debt payment history is 35% of your FICO score.
- Pay down revolving account balances, such as credit cards, and keep balances low.
- Keep older accounts open, as long-standing accounts boost your score.
- Diversify your credit types, such as credit cards and an auto loan.
- Limit new credit applications.
- Correct errors on your credit report: “Regularly check your credit report for errors and dispute any inaccuracies,” Garcia says.
Setting up a budget and sticking to it is one way to ensure your bills are paid on time. Another highly effective method is to set up automatic withdrawals from your checking account on or before each month’s due date.
It’s also a good idea to monitor your credit report with Experian or another credit reporting bureau at least once a year to ensure no fraudulent activity occurs on your accounts. Some banks, such as Wells Fargo, will monitor your credit score monthly with a “soft pull” that doesn’t affect your score.
Why You Should Trust Us
Benzinga has offered investment and mortgage advice to more than one million people. Our experts include financial professionals and homeowners, such as Anthony O’Reilly, the writer of this piece. Anthony is a former journalist who has won awards for his coverage of the New York City economy. He has navigated tricky real estate markets in New York, Northern Virginia and North Carolina.
For this story, we worked with Jose Garcia, president and CEO of the Illinois-based Northwest Community Credit Union, which offers multiple financial services, including mortgages.
FAQ
What credit score do you need for a $400,000 house?
The credit score needed for a $400,000 house depends on the type of loan you’re seeking, but for conventional mortgages, you’ll need at least a 620 credit score.
How much can I get approved for with a 720 credit score?
A 720 credit score will set you up for success in multiple markets, though the exact figure you’ll be approved for depends on your location, debt-to-income ratio, income and the type of loan you’re looking to secure.
What kind of credit score is 720?
A credit score of 720 is considered a “good” score. Credit scores range from 300 to 850.
Sources
- Jose Garcia, president and CEO of Northwest Community Credit Union
About Anthony O'Reilly
Anthony O’Reilly is an updates editor for Benzinga. He’s won numerous journalism awards for his coverage of the New York City economy and Long Island school district budgets.
