If you're hoping to buy a home, one number you'll want to get to know well is your credit score. Also called a credit rating or FICO score (named after the company that created it, the Fair Isaac Corporation), this three-digit number is a numerical representation of your credit report, which outlines your history of paying off debts.
Why does your credit score matter? Because when you apply for a mortgage to buy a home, lenders want some reassurance a borrower will repay them later! One way they assess this is to check your creditworthiness by scrutinizing your credit report and score carefully. A high FICO rating proves you have reliably paid off past debts, whether they're from a credit card or college loan. (Insurance companies also use more targeted, industry-specific FICO credit scores to gauge whom they should insure.)
In short, this score matters. It can help you qualify for a home, a car loan, and so much more. Which brings us to an important question: What type of score is best to buy a house?
Inside your credit score: How does it stack up?
A credit score can range from 300 to 850, with 850 being a perfect credit score. While each creditor might have subtle differences in what they deem a good or great score, in general an excellent credit score is anything from 750 to 850. A good credit score is from 700 to 749; a fair credit score, 650 to 699. A credit score lower than 650 is deemed poor, meaning your credit history has had some rough patches.
While FICO score requirements will vary from lender to lender, generally a good or excellent credit score means you'll have little trouble if you hope to score a home loan. Lenders will want the business of home buyers with good credit, and may try to entice them to sign on with them by offering loans with the lowest interest rates, says Richard Redmond at All California Mortgage in Larkspur and author of “Mortgages: The Insider’s Guide.”
Since a lower credit score means a borrower has had some late payments or other dings on their credit report, a lender may see this consumer as more likely to default on their home loan. All that said, a low credit score doesn't necessarily mean you can't score a loan, but it may be tough. They may still give you a mortgage, but it may be a subprime loan with a higher interest rate, says Bill Hardekopf, a credit expert at LowCards.com.
How a score is calculated