Good Credit Score for Mortgages

by Tom Streissguth
FICO scores determine how much house you can buy.

FICO scores determine how much house you can buy.

The credit score achieved by a potential home buyer is crucial to his mortgage loan application, and the interest rate available to him as a borrower. Generally, the higher the credit score, the better the credit history and the lower the interest rate on the mortgage loan. Several factors go into determining a credit score, however. You should carefully monitor your score well before you enter the market for a new home.

Credit Rating Agencies

Three major credit-rating agencies--TransUnion, Experian and Equifax--collect data from your credit accounts, including current and past loans, credit card accounts and mortgages. This information is processed using formulas created by the Fair Isaac Corporation, also known as FICO. Each agency has a unique method of calculating its FICO score, however, so the numbers may vary slightly.


Various factors go into credit scores, including length of credit history, late payments, current account balances, balances as a percentage of total credit available, the type of credit accessed such as installment and revolving accounts, and recently opened accounts. Credit reports and scores also include charged-off accounts and collections and/or delinquent accounts. Liens, judgments and bankruptcies also appear on your credit report and affect the final score.

Credit Score Range

Credit scores range from 300 to 850, with the latter number representing a flawless credit history. Lenders have guidelines, based on credit scores and history, which govern how much credit they will extend and what interest rate they will charge. A score of at least 700 allows them to offer more flexibility and options to borrowers, as well as lower interest rates. Above 700 is the ideal range for home buyers in need of a mortgage.

Lower Scores

A credit score in the 600s, which approximately one-quarter of the population carries, does not prevent a buyer from obtaining a mortgage. However, the lender may demand a higher down payment and charge a higher interest rate to borrowers in this range. They may keep the interest rate steady, but add on fees and "points" to the up-front cost of the loan. In addition, many lenders will not lend to anyone with a score lower than 600, or even 620. A score of 500 is the absolute minimum for obtaining a home mortgage. With this lower score, buyers will have fewer loan options and pay a higher interest rate.


When applying for a mortgage, you should always inquire as to which credit agencies the lender is using, what their lending guidelines are and how their terms--including down payment and interest rate--vary with different credit score ranges. If you have a blemish on your credit report, you will have the opportunity to explain to the lender what caused the problem and how you are handling it.

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