What Credit Score Is Needed to Buy a House?

The credit score is all-important if you’re preparing to buy a house. Lenders will look at your credit score to determine the mortgage interest rate, available loan amount and more. Credit score requirements vary by type of loan. If you’re applying for a mortgage with a spouse, both of your credit scores will have an impact, but how the lender calculates which score to use also varies. Read on to understand what credit score is needed to buy a house to secure a home this year.

Understanding Credit Scores

The three national credit reporting bureaus — Equifax, Experian and TransUnion — collect information from lenders, banks and other companies to formulate your credit score. Information reported includes payment history, total debt, available credit used and the age of the oldest line of credit. 

The two most popular methods for calculating credit scores are the FICO Score and VantageScore models, although most lenders look at the FICO Score. A credit score in either model ranges from 300 to 850, but how they are calculated varies between models.

FICO, an abbreviation of its developer’s name Fair Isaac Corp., was recently updated to FICO 9. While many lenders still used FICO 8, FICO 9 places less weight on unpaid medical collections, factors in rental history when reported and ignores paid third-party collections.

The credit bureaus weigh different elements of the credit score calculation to get a single number. These are:

• Payment history: 35% 
• Amounts owed: 30% 
• Length of credit history: 15% 
• Credit mix: 10% 
• New credit: 10%

The credit bureaus are reporting to lenders on:

• Whether you regularly make payments on time
• How much available credit you use
• Credit history length
• Total new credit accounts
• The types of credit you use (revolving, installment, etc.)

Because of different calculations, what’s considered a good or excellent score in the FICO Score versus VantageScore models is also different. Here’s a comparison:

Minimum Credit Scores for Home Loans

While a higher credit score can offer better loan opportunities, if your credit score falls in the poor range, you still have options. Here are the minimum score requirements for major types of mortgages. 

Conventional Loans

Conventional loans are the most commonly used mortgage loans. Lenders such as banks, credit unions or online lenders offer conventional home loans. Conventional loans are not government-backed. Conventional loans typically require a minimum credit score of 620, though some may require a score of 660 or higher. 

The higher your credit score, the more leverage you have to negotiate a lower interest rate. 

FHA Loans

FHA loans are backed by Federal Housing Administration (FHA) mortgage insurance and provided by an FHA-approved lender.  FHA loans are designed to support low- and moderate-income homebuyers with limited cash for a down payment.

FHA loans have a minimum credit score of 500 if you make a 10% down payment or 580 for a down payment of 3.5%. FHA loans are the best option for borrowers with a low credit score. Learn how to get FHA preapproval here. 

VA Loans

VA loans are government-backed loans guaranteed by the U.S. Department of Veterans Affairs (VA) and provided by a VA-approved lender. VA loans are available for military community members, spouses and other eligible beneficiaries who meet VA requirements. 

The VA doesn’t state a minimum credit score requirement for VA loans, but lenders typically require a score of 620 or higher. Compare FHA vs. VA loans here. 

USDA Loans

A USDA home loan, also called the USDA Rural Development Guaranteed Housing Loan Program, is a mortgage loan insured by the U.S. Department of Agriculture. It’s available for borrowers looking to purchase eligible rural properties and is aimed specifically at helping lower-income borrowers. With zero downpayment, USDA loans are an attractive option for qualified homebuyers. 

USDA loans don’t have a set minimum credit score, but lenders typically require a score of at least 580. See more on USDA vs. conventional loans. 

How Credit Scores Impact Mortgage Approval

When you apply for mortgage preapproval, lenders will ask you for your Social Security number to check your credit score. Before final mortgage approval, the credit score will factor into the approved loan amount, interest rates and fees.

Generally, the higher the credit score, the lower the available interest rate. Over the loan’s lifetime, a higher credit score can save you thousands of dollars in interest payments. A higher credit score can also translate to lower mortgage insurance premiums, leading to additional monthly savings. 

While you can qualify with a lower credit score, a credit score of 700 or higher proves you manage your credit well and should open the opportunity to better interest rates. 

Ways to Improve Credit Score for Homebuying

If you want to improve your credit score before buying a home, here are the steps. 

Pay Your Bills on Time

By consistently paying your bills on time, you can show lenders that you are responsible and reliable when it comes to managing your finances. On-time payments make up 35% of your credit score and should be your first credit-building step. To prevent missing a payment date, which can happen to anyone, set up automatic payments for at least the minimum amount due to ensure you stay on track for credit-building. 

Reduce Your Credit Utilization 

The amount owed makes up 30% of your credit score. Aim to keep your credit utilization ratio below 30% to improve your credit score. That means that if you have a credit card with $10,000 in available credit, you should avoid using more than $3,000 at one time. You can get a lower credit utilization ratio by paying down existing balances and not maxing out your credit cards.

Avoid Opening New Credit Accounts

Opening multiple new credit accounts in a short period can negatively impact your credit score. A single new credit line can boost your credit score by improving your credit utilization ratio, but multiple credit cards tell lenders you might be struggling with debt. If you plan to apply for a mortgage, avoid applying for new credit cards for at least six months before applying. 

Check Your Credit Report for Errors 

Regularly check your credit report and dispute any inaccuracies that you find. You're entitled to a free annual credit report from all three credit bureaus at annualcreditreport.com. Many major banks and credit card issuers now also offer credit tracking services. 

Build a Longer Credit History

If you are starting with a limited credit history, consider becoming an authorized user on someone else’s credit card or opening a secured credit card to begin establishing credit. You can also use a rent reporting company to get a positive credit history from on-time rent and utility payments. 

Working with the Right Mortgage Lender

The right mortgage lender can help you secure the best terms to buy your next home. Find mortgage lenders here.

Securing a Mortgage for Your Home

A low credit score shouldn’t stop you from buying a home, but building your credit score before applying is a smart strategy. Consider paying off debt, setting up automatic monthly payments or becoming an authorized user on the card of someone else who has a high credit score for a fast credit score boost. 

Frequently Asked Questions