(Jan. 11, 2019) If a less than perfect credit score has been holding you back from making a home purchase, rest assured, there are many things you can do to turn your credit score around.
But the first step is understanding what goes into a credit score.
A FICO (Fair Isaac Corporation) score is the most common type of credit score used. Lenders use FICO scores to determine the amount of risk that comes along with lending any given borrower money because they use a consolidated view of how consumers repay credit obligations, including accounts held by other lenders, and the data is built using consumer bureau data from millions of consumers.
FICO scores are updated regularly to reflect changes in consumer behavior and lending practices.
FICO scores range from 350-850—with the the breakdown of the borrowing public as follows:
Exceptional 800-850 = 20 percent
Very Good 740-799 = 25 percent
Good 670-739 = 21 percent
Fair 580-669 = 18 percent
Very Poor 300-579 = 16 percent
In order to get the best mortgage rates, you usually have to show a FICO score of 740 or higher. That doesn’t mean you won’t get approved for a mortgage if you have less than a 740 score, it just means you will most likely pay a slightly higher interest rate on the loan.
The type of financing you are applying for also affects what data the lender will pull. For example, when applying for a home loan, the lender will most likely pull all three credit bureau scores—Equifax, Experian and TransUnion, and will probably use the middle score of all three.
However, if you are applying for a car loan, the lender may only pull one credit score.
— Lauren Bunting is a licensed Associate Broker with Bunting Realty, Inc. in Berlin.