The Importance of a Good Credit Score and How to Achieve It

“`html

What Is a Good FICO Score?

For a score ranging between 300 and 850, a credit score of 700 or above is generally considered good. A score of 800 or above is considered excellent. Most consumers have credit scores that fall between 600 and 750. In 2023, the average FICO® Score in the U.S. reached 715.

Achieving a good credit score can help you qualify for a credit card or loan with a lower interest rate and better terms. Different lenders use their own criteria for deciding whom to lend to and at what rates. Here’s more on what qualifies as a good credit score, what impacts your credit, and how to improve your credit score.

What Is a Good VantageScore?

VantageScore’s first two credit scoring models had ranges of 501 to 990. The two newest VantageScore credit scores (VantageScore 3.0 and 4.0) use a 300 to 850 range—the same as the base FICO® Scores. For the latest models, VantageScore defines 661 to 780 as its good range.

What Is a Good Credit Score to Buy a House?

To increase your odds of approval and qualify for a lower-rate mortgage, you should aim to have a credit score in the good range. That’s a FICO score of 670 or higher.

The minimum credit score needed to buy a house can range from 500 to 700, but will ultimately depend on the type of mortgage loan you’re applying for and your lender. Most lenders require a minimum credit score of 620 to buy a house with a conventional mortgage. Other types of mortgages have different credit score requirements:

• FHA home loans typically require a credit score of at least 500 if you put 10% down or 580 if you put 3.5% down.
• USDA loans don’t have a set credit score requirement, but lenders typically require a score of at least 580.
• VA loans also don’t have a set minimum credit score, but lenders typically require a score of 620 or higher.

Remember that your credit score plays a role in determining the interest rate and payment terms on a mortgage loan. Lenders base the interest they charge on how risky they view you as a borrower. So while it may be possible to get a mortgage with bad credit, you’re typically better off improving your score before you apply for a mortgage to qualify for good terms.

What Is a Good Credit Score to Buy a Car?

While there isn’t a set minimum credit score to buy a car, you should aim to have a score of 670 or higher, which puts you in the good credit range. You’ll qualify for better auto loan terms with a higher credit score.

Auto lenders view low credit as a sign of risk, so an applicant with poor or fair credit will pay more in interest to borrow a car loan. If your FICO® Score is below 670, aim to build credit before you buy a car. Reaching the “good” credit score range may help you qualify for lower interest and better terms.

What Affects Your Credit Scores?

Common factors can affect all your credit scores, and these are often split into five categories:

• Payment history: Making on-time payments on your credit accounts can help your scores. But missing payments, having an account sent to collections or filing bankruptcy could hurt your scores.
• Credit usage: How many of your accounts have balances, how much you owe and your credit utilization rate—the portion of your credit limit that you’re using on revolving accounts—all come into play here.
• Length of credit history: This category includes the average age of all your credit accounts, along with the age of your oldest and newest accounts.
• Types of accounts: Also called “credit mix,” this considers whether you’re managing both installment accounts (such as a car loan, personal loan or mortgage) and revolving accounts (such as credit cards and other types of credit lines). Showing that you can manage both types of accounts responsibly generally helps your scores.
• Recent activity: This considers whether you’ve recently applied for or opened new accounts.

Why Having a Good Credit Score Is Important

Having good credit can make achieving your financial goals easier. It could be the difference between qualifying or being denied for an important loan, such as a home mortgage or car loan. And, it can directly impact how much you’ll have to pay in interest or fees if you’re approved.

For example, the difference between taking out a 30-year, fixed-rate $250,000 mortgage with a 620 FICO® Score and a 670 FICO® Score could be $161 a month. That’s extra money you could be putting toward your savings or other financial goals. Over the lifetime of the loan, having the better score would save you $57,842 in interest payments.

Additionally, credit scores can impact non-lending decisions, such as whether a landlord will agree to rent you an apartment.

Your credit reports can also impact you in other ways. Some employers may review your credit reports (but not your credit scores) before making a hiring or promotion decision. And, in most states, insurance companies may use credit-based insurance scores to help determine your premiums for auto, home and life insurance.

How to Improve Your Credit Scores

To improve your credit scores, focus on the underlying factors that affect your scores. At a high level, the basic steps you need to take are fairly straightforward:

• Make at least your minimum payment and make all debt payments on time. Even a single payment made 30 days or more late can hurt your credit scores and it’ll stay on your credit report for up to seven years. If you think you may miss a payment, reach out to your creditors as quickly as possible to see if they can work with you or offer hardship options.
• Keep your credit card balances low. Your credit utilization rate is an important scoring factor that compares the current balance and credit limit of revolving accounts such as credit cards. Having a low credit utilization rate can help your credit scores. Those with excellent credit scores tend to have an overall utilization rate in the single digits.
• Open accounts that will be reported to the credit bureaus. If you have few credit accounts, make sure those you do open will be added to your credit report. These could be installment accounts, such as student, auto, home or personal loans, or revolving accounts, such as credit cards and lines of credit.
• Only apply for credit when you need it. Applying for a new account can lead to a hard inquiry, which may hurt your credit scores a little. The impact is often minimal, but applying for many different types of loans or credit cards during a short period could lead to a larger score drop.

Other factors can also impact your scores. For example, increasing the average age of your accounts could help your scores. However, that’s often a matter of waiting rather than taking action.

Checking your credit scores might also give you insight into what you can do to improve them. For example, when you check your FICO® Score 8 from Experian for free, you can also look to see how you’re doing with each of the credit score categories.

You’ll also get an overview of your score profile, with a quick look at what’s helping and hurting your score.

Contact O1ne Mortgage for Your Mortgage Needs

At O1ne Mortgage, we understand the importance of having a good credit score when applying for a mortgage. Our team of experts is here to help you navigate the mortgage process and secure the best terms possible. Call us today at 213-732-3074 for any mortgage service needs. We are committed to helping you achieve your financial goals with ease and confidence.

“`