The minimum credit score needed to get most mortgages is usually around 620. However, government-backed loans, such as Federal Housing Administration (FHA) loans, have lower credit requirements than conventional fixed-rate loans and adjustable rate mortgages (ARM). People with credit scores in the mid-700s or higher usually get the lowest interest rates. Mortgage lenders use a FICO score to determine your creditworthiness.
Closing unused accounts may seem like a good idea, but it can increase your credit utilization rate and lower your credit score. If you have an average score of 580 and your co-borrower has a credit score of 720, the average credit score would be 650. The CFPB states that people with credit scores in their mid-700 years or higher qualify for the best mortgage rates. However, if your score is higher than 640, you may be eligible to expedite the credit processing of a USDA loan.
Due to current economic uncertainty, many lenders have raised the minimum credit rating requirements for loans, even those that allowed lower scores in the past. When you apply for pre-approval, your lenders will review your credit history and consider your current credit outlook. Other types of loans allow for lower minimum credit ratings, and some mortgage programs don't require any type of credit rating. The VA doesn't set a minimum credit score for these loans, and lenders can set their own requirements.
Generally speaking, you'll likely need a score of at least 620, which is classified as a “fair rating”, to qualify with most lenders. The government sets standards for approving conventional, FHA, VA, and USDA loans, but mortgage lenders sometimes set additional, more stringent requirements that must be met. Your credit rating is one of the most important factors that lenders consider when you apply for a mortgage. If you have a lower credit score or don't have much cash for a down payment, you might consider applying for an FHA loan, which is insured by the Federal Housing Administration.