If you want to make the switch from renting to owning a home, a good credit score can get your foot in the door. But what’s considered good? The answer can depend on the type of home loan you're applying for.
Read more: How to start saving for your next home with Ally Bank's buckets and boosters
What is a good credit score to buy a house?
In general, you’ll need a credit score of 620 to finance a home purchase. However, the minimum credit score needed will depend on the lender and mortgage loan type.
How important is credit score when buying a house?
Your credit score is one of the most important factors in buying a house, as lenders use it to gauge how likely you are to repay a home loan. The higher your credit score, the easier it can be to get approved for a mortgage and lower interest rates on the loan.
In general, you’ll need a credit score of 620 to finance a home purchase. However, the minimum credit score needed will depend on the lender and mortgage loan type.
Minimum credit score needed for each mortgage loan type
The chart below outlines different types of mortgage loans and their required minimum credit score.
Type of Loan | Minimum FICO Score |
|---|---|
Conventional | 620 |
700 | |
FHA loan requiring 3.5% down payment | 580 |
FHA loan requiring 10% down payment | 500 |
VA loan | No minimum score. However, most lenders usually require that your score be at least 620. |
USDA loan | No minimum score. However, most lenders usually require that your score be at least 580. |
HomeReady | 620 |
What changes your credit score?
The majority of lenders use FICO credit scores for mortgage loan approval decisions, which are calculated based on five specific factors:
Payment history: 35% of your score
Credit utilization: 30% of your score
Credit age: 15% of your score
Credit mix: 10% of your score
Credit inquiries: 10% of your score
How to improve your credit score
Raising your credit score won’t happen overnight, but you can build and maintain a good credit score by developing healthy financial habits, including:
Pay bills on time
Keep your credit utilization at 30% or lower
Increase your credit limits on your cards without increasing your outstanding balance
Use different types of credit, such as loans and credit cards
Keep credit cards open to improve your utilization rate
Pay off collection accounts
Limit how often you apply for new credit
Dispute any inaccuracies
What else do mortgage lenders consider?
Lenders look at more than just your credit score when deciding whether to approve you for a home loan, including:
Income and employment status
Outstanding debts
Assets, including bank accounts and investment accounts
Financial obligations other than monthly bills, such as alimony
Delinquencies, bankruptcies and foreclosures
In addition, mortgage lenders analyze the loan terms and the size of your down payment. For example, a larger down payment could help you qualify for a lower interest rate because it makes the loan less risky for the lender.
Your home loan options if you have bad credit
Less-than-perfect credit? It’s still possible to qualify for a mortgage loan. To start, you will need to understand potential mortgage options. An FHA loan, for example, could be a good choice since you can get approved with a FICO score as low as 500. Or if you’re an eligible veteran, you might also consider a VA loan, which doesn’t have a minimum credit score requirement.
Bringing on a co-signer
If you’re still having trouble getting a home loan with poor credit, some lenders allow you to co-sign with someone who has a higher credit score. A co-signer typically will need a credit score of 670 or better and should be someone with a low DTI. Keep in mind, if you and your co-signer are unable to make loan payments, it could reduce both of your credit scores and may hurt your financing chances in the future.
Your credit score counts
Credit scores are a measure of financial health, and it’s important to understand what credit score is needed to qualify for a mortgage loan. And while they aren’t the only thing lenders consider for approval, credit scores carry a lot of weight. Before you start the homebuying process, make sure your score is in the best shape possible.
