Is your credit score where it needs to be for you to buy the home of your dreams? The fact is, your FICO score is a critical component in the home loan process. Not only is your FICO credit score a direct link to the interest rate you’ll pay for your mortgage, but it could be the deciding factor as to whether or not you qualify for a home loan.
As part of our budget 101 series of articles, we’re helping you learn more about your credit score. The following guide from Debt.org shows you common FICO credit scores and what they mean to lenders.
- Excellent (800-850)
On average, only 18 percent of the population has a credit score that sits between 800-850. This score tells lenders and potential lenders that you are a low risk and that they are very likely to receive payment on loans granted to you. In turn, this score means you may be offered a very favorable (low) interest rate.
- Very good (650-779)
If your credit sits here, you join 47 percent of Americans. While your score isn’t in a problem range, there can be room for some improvement. This score can have a minimal impact (if any) on the interest rate you may pay for your home loan.
- Good (550-649)
A score between 550 and 649 sits below the national average of 660. Credit scores in this range may be considered problematic, and can send a message to lenders that you may have had some financial challenges as a consumer. Unfortunately, until you begin to improve your score, it’s quite possible that you’ll face higher than normal interest rates when shopping for a home loan.
- Poor (300-549)
If your score falls between 300 and 549, it’s in the lowest credit score range with about 16 percent of other Americans. In this case, your credit score can seriously affect your interest rates. In fact, you may be hit with rates that are 2-4 percent higher than the lowest available. However, don’t get discouraged. Instead, use this FICO score finding as a tool in which to improve and closely monitor your credit score so that in the future, you’ll be able to access loans when you need them.
Remember, the effects of your credit score and the interest rate you may pay depends on your individual circumstances. However, the key takeaway should be to continually monitor your credit report and try to improve it.
For more budget 101 tips, as well as information on the importance of knowing your credit score, visit the Protective Learning Center.