Buying your first home or moving from the previous one is a serious investment that everyone should do at one point of their lives. However, that’s not an easy thing to do for everyone. If you are looking to buy a home and want to ask for a loan, you need to have a “good” credit score. What is a good credit score? How do I find out what my credit scores are? We will answer your questions.
What is my credit score?
Your credit score is a number that represent your creditworthiness to the financial institutions. This number is calculated based in your credit history and having a good one is one of the requirements is you want to ask for a credit or a mortgage. Financial institutions will evaluate the risk of giving you a credit by checking your credit score, as this shows the probability a person has to repay his debts.
The Fair Isaac Corporation, commonly known as FICO is the responsible behind the credit score model. This score range from 300 to 850, the higher the number, the more creditworthy you will look to the institutions.
The factors that are considered to calculate your credit score are:
- Payment History: this counts for the 35% of the credit score
- Total amount owed: 30%
- Length of your credit history: counting for a 15%
- Types of credit: only 10%
- New credit: the remaining 10%
Things like age or race doesn’t count to the credit history.
What is a good credit score?
A good credit score is something between 650 and 850 in the FICO range. Some people say that 640 is a good score, others says you need a 700+ score to be considered “good”, but 680 is a good number. However, you don’t necessarily need a 680+ FICO score to buy a home, for example, using an FHA loan, the minimum scored needed is just 580. Remember, having a good score only doesn’t mean that you will be approved for a mortgage, because lender always check other things, like how much debt do you have of your employment history, so keep that in mind.
The minimal credit score may vary, and below are the most common types of mortgages:
- Conventional loan: you will need at least 620 to be approved.
- FHA loan: this is a bit lower than the others, with a minimum of 580 credit score required to be approved.
- USDA loan: the minimum with a USDA loan is 640 to be approved. You can increases your chances of approval if your overall application is good enough.
How can I check my credit score?
Before applying for a mortgage to buy a home, the first thing you need to do is check your FICO score. In the internet there are a few websites that can give you your credit score for free with your credit report. However, some free websites don’t show your exact credit score number, so we recommend a paid site.