What’s the Minimum Credit Score to Buy a House?

What is a credit score?

What exactly is a credit score? It’s a crucial number that encapsulates your entire financial history, reflecting everything from your early decisions, like opening a checking account, to more recent actions, such as paying a bill late. Your credit score provides a snapshot of your financial behavior over time, showcasing your ability to manage and maintain credit effectively — or revealing areas where you might have struggled.

There are three major credit bureaus — Experian, TransUnion, and Equifax — that track and report your credit information. Each bureau collects data from different sources, which can lead to slight variations in your credit score across the bureaus. Not all creditors report your financial behavior to all three agencies, which means that negative information might not be equally reflected across all of them.

To address these discrepancies, lenders often use the FICO score, developed by the Fair Isaac Corporation. The FICO score combines data from all three bureaus into a single, standardized measure, offering a more consistent and reliable assessment of your creditworthiness. This uniform approach helps lenders make more informed decisions when evaluating your loan or credit applications.

Joe Tafolla, a top-rated mortgage broker in the Seattle area, tells buyers,  “Credit scores are important to lenders because they are directly correlated with the likelihood of the buyer being able to follow through with the commitment of repayment.”

Credit and FICO scores range from 300 to 850, with higher scores indicating better credit. Here are the typical score ranges:

• Less than 580 – poor
• 580 to 669 – fair
• 679 to 739 – good
• 740 to 799 – very good
• 800 to 850 – excellent

If you’re looking to buy a house but have a low credit score, understanding how to improve it is essential. Certain factors have a greater effect on your score than others. By identifying what matters most, you can target effective solutions and focus your efforts on areas that will make the biggest difference.

What factors affect your credit score?

According to FICO, your payment history makes up 35% of your score, so if your cable company reported that late payment, it hurt you. The best thing you can do now is plan to pay everything on time going forward.

Credit use is the next-biggest factor. This refers to the percentage of your available credit that you’re currently using. For example, if you have a credit card with a $15,000 limit and you’ve charged $7,500 to it, your credit use is 50%. FICO calculates this ratio across all your credit accounts, and a high use can negatively affect your score.

“Some people may have perfect payment history but have maxed out their cards and thus the credit score is suffering,” Tafolla says. “Those are the scores that are easy to fix. Once the balances are paid down, the scores pop up quickly.” Credit use could be your biggest negative, and paying down balances could give your score the boost it needs.

The length of your credit history accounts for 15% of your score, and it’s something you can’t alter. Generally, the longer you’ve had open accounts, the better your score. While you can’t go back and open accounts from earlier in life, it’s important to keep your older accounts open. Closing them can negatively affect your score, especially if they are removed from your credit report.

The mix of credit types you have makes up 10% of your score. Lenders view different types of credit differently: A credit card, which typically is unsecured, is treated differently from an auto loan, which is backed by physical property. Having too much unsecured debt can lower your score, but having no debt at all can also negatively affect it. Balancing various types of credit is key to maintaining a healthy score.

Lenders want to see how you manage debt, so relying solely on cash for purchases might result in a lower credit score. It might seem counterintuitive, but opening a credit card, making charges, and then paying off the balance can actually improve your credit standing.

The last 10% of your FICO score consists of new inquiries. Every time you apply for a new credit card or auto loan, it shows on your report as a credit inquiry. Why? Because if you’ve been running around town opening up new accounts, it tells lenders that you might be having money issues. It’s a red flag for them — which is why you should avoid buying a new car or applying for a new card when you’re also home shopping.

How does your credit score stack up?

It’s tough to pinpoint the exact credit score that might kick you out of the running for a mortgage, since lenders consider other factors too. There aren’t official minimums for VA or USDA loans, but lenders usually have their own cutoff scores and might not accept applications from anyone below a certain level.

You’ll need a score above 500 to get approved for an FHA loan with 10% down. If you only have a 3.5% down payment, your score should be 580 or higher. This is also the minimum score recommended when applying for a VA loan.

Most conventional loans require a minimum credit score of 620, while a score above 640 is recommended for USDA loans. These minimums can be flexible; for example, a larger down payment might improve your chances even with a lower score. However, a lower credit score usually means you’ll face higher interest rates, making your loan more expensive even if you’re approved.

What’s an “average” credit score for first-time buyers?

If you’re curious about how your score compares to others and whether it meets or exceeds the minimum credit score to buy a house in your area, we’ve got the answers you need.

Experian reports that the average credit score in the US is about 714, which falls into the “good” range for mortgage lenders. Most lenders consider any FICO score above 680 to be favorable for buying a house.

The variation in credit scores among first-time buyers can be attributed to differences in home prices across regions. For example, in areas where first-time home prices are significantly higher, buyers often need a stronger financial profile, which is reflected in their credit scores. This regional disparity helps explain why the average credit score can vary based on local real estate markets.

Boosting your credit for a better mortgage

With a large enough down payment, you might still land a mortgage even with less-than-perfect credit. However, Simpkins points out that banks might require you to put down 20% to 25% to reduce their risk. Sometimes, it might be smarter to wait and save more, since you’ll be stuck with that high interest rate for 30 years unless you refinance.

Improving your credit can help you get a better deal, so consider spending a few months to a year boosting your score before you start house hunting. As Tafolla notes, “great, good, and poor credit come in all shapes and sizes.” Depending on why your credit score is low, fixing it might be simpler than you think.

Talk to a licensed loan officer about your options for a home loan with your current credit score, and how they could expand if your score improved. They might be willing to offer advice and help you improve your score to gain your business. Simpkins found a lender willing to work with one of his clients who had a credit score “somewhere in the range of about 590. We got their credit score all the way to about a 670 literally in a matter of three weeks by paying off a couple of small debts that were well below $500.”

Unlock better mortgage options

Understanding your credit score empowers you to make improvements that can help you qualify for your dream home. By educating yourself about credit requirements to buy a house and taking steps to enhance your score, you take control of your financial future and open the door to better mortgage options.

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