Finding a good credit score for a home loan is like trying to hit a moving target. Different loan programs have different requirements, and within those programs different lenders can also have their own rules. While a 720 credit score is usually an entree to very competitive financing, a higher score may result in lower costs with some types of loans. In some programs, even a 620 may be good enough to get the best rates.
Credit Score Basics
Your credit score gets calculated based on the strength of your credit profile. Scoring models look at how much credit you have, how much you use it, your history of paying it, and your overall length of profile in determining your score. One of the most widely used scoring models, the FICO score, expresses all of this information in a three-digit number that ranges from 300 to 850. Most lenders will request scores from the three main credit bureaus and will make their lending decision based on the middle score. For example, if your scores are 698, 719 and 741 at the three main credit bureaus, the 719 score is the one that will be considered.
The interest rate you get on a conventional loan is likely to be set based on your credit score; the higher your score, the lower your rate. While rate tiers vary between lenders, a good rule of thumb, according to Zillow, is that you'll start getting good rates with a middle score of 720 or higher, and the best rates come into play with scores above 760. If you're putting less than 20 percent down, your mortgage insurance may also be priced relative to your credit score. As with interest rates, mortgage insurance prices frequently get meaningfully lower for scores above 720, with the best pricing available for a score of 760 or higher. If your credit score is below 620, you may find it hard or impossible to find a conventional mortgage or to take out mortgage insurance.
Government-backed loans include mortgages guaranteed by the Federal Housing Administration, the Department of Veterans Affairs, and the Department of Agriculture. With these loans, the lender's return is guaranteed by the government, so the risk to the lender is less. Most of these loans aren't priced on the basis of your credit score. Lenders look at your credit to determine whether or not to lend to you, but the interest rate will be the same whether your score is 621 or 821. The rules vary for these programs, but a good rule of thumb is that, as of the date of publication, a middle score of 620 to 640 will be enough to qualify you to take out a mortgage.
Managing Your Score
Regardless of the program you choose, your credit score is your key to getting a mortgage, and the higher it is, the better off you'll be both in terms of your mortgage and other credit offers. Good credit management isn't particularly complicated, either. Paying your bills on time and using as little of your credit limit as possible -- preferably on the lower end of the 10 to 30 percent range -- can help keep your score healthy. Working with the credit bureaus to remove inaccurate information can also improve your score.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.