November 21, 2021



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Buying a house can be a confusing journey. There’s a lot of real estate jargon, complicated contracts, and many different professionals you need to work with all at once. It’s a complicated process, with many steps along the way. One of the most critical steps is securing a mortgage loan. 

Most people know they need a loan to buy a home, but many don't know exactly what it takes to get one. Some common questions people in this situation have include:  What is the credit score needed to get a loan? Do I need a certain credit score to buy a really large and expensive house? How do I know if I will qualify for a mortgage?

Understanding how credit scores are calculated, minimum credit score requirements for loans, and how to raise and lower credit scores is the best way to get the right loan so you can get the house that’s right for you.

How Is A Credit Score Calculated?

How Is A Credit Score Calculated?

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Even if you have a good credit score, understanding how it is calculated can help you maintain it. If you have a low credit score, understanding this calculation can help you learn how to improve it.

The three biggest credit bureaus are Experian, Equifax,and TransUnion, and they have information on anyone who has borrowed money. A few examples are personal loans, car loans, mortgage loans, and credit cards. They track everything from payment history, how much is owed, and how much available credit people are using. 

Your credit score, also known as a FICO score, is calculated by pulling together all of this information. The term FICO score refers to the way credit is calculated with software from Fair Isaac Corporation (FICO). 

If you pay your bills on time and don't have a high amount of credit compared to your income, your score will be better. If you have a lot of outstanding credit and don’t pay your bills on time, your score will be lower. 

For example, if you took out a mortgage loan to buy a home and faced financial hardship that stopped you from making your monthly payments, your credit score would go down quite a bit.  If you bought a new car with a loan and paid it on time every month until the end of the loan, your score would go up.

Free credit scores are available on a number of websites, and looking yours up is a good way to see where you stand. In addition, this can help you find out if there is any incorrect information on the report. Clearing up irregularities can help you raise your score right away. 

Websites like don’t do a hard credit pull, which is done for larger loans like a home mortgage and hurts your score. A hard credit check brings your credit score down because it tells lenders that you've applied for additional credit, which indicates you may be a higher risk in terms of paying your loan bills. 

Here is a more in-depth look at how your credit score is calculated:

  • Payment History: The most crucial factor for your score is your payment history, and it makes up 35 percent of your total credit score. Paying your bills on time is the most critical way to improve your credit. 
  • Credit Utilization: This indicates your current credit that you are actively using and makes up 30 percent of your score. It’s a good idea to keep your credit utilization ratio under 30 percent.
  • Average Age of Accounts: A calculation of the average age of all your loan accounts makes up 15 percent of your credit score. You can’t change the age of past accounts, but you can think twice before opening new (young) accounts. 
  • Credit Mix: Making up 10 percent of your total score, the credit mix refers to the number of revolving loans and installment loans you have. Revolving credit refers to things like credit cards, where your available credit changes as you make payments and use the card. Paying off a car loan over three years with a monthly payment is an example of an installment loan. 
  • New Credit: Making up 10 percent of your total credit score, new credit refers to any loan that is under six months old. This can hurt your credit score for two key reasons. 1. If the loan uses a hard credit pull, your score goes down. 2. New credit brings down the average age of your accounts.

Now that you know how your credit score is calculated, you may be wondering how high it needs to be to buy a home. Or, more importantly, how low can this score be to be able to buy a home?

What Credit Score Is Needed For Buying A House?

What Credit Score Is Needed For Buying A House?

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The most significant factor is mortgage loan type. Some loans are geared toward helping people buy a home with bad credit. Let’s look at a few different types of loans, including the minimum credit scores for each.

Conventional Loans: Minimum Credit Score 620

There actually isn't a minimum credit requirement for these loans, but most lenders require a score of 620 or better. The higher your score, the better the deal will be. For example, having a high credit score can save you money on the cost of private mortgage insurance (PMI), which is required if your down payment is under 20 percent of the loan amount.

FHA Loans: Minimum Credit Score 620

There are also several government-backed loans that may be available to you, starting with the Federal Housing Administration (FHA) loan for first-time homebuyers. FHA loans allow borrowers to put down a smaller down payment than most conventional loans. These can only be used for buying a primary residence, but if you are a first-time homebuyer and your down payment isn't enough to qualify for a conventional loan, an FHA loan might work.

VA Loans Minimum Credit Score 640

Backed by The Department of Veterans Affairs (VA), a VA loan requires a higher minimum score than FHA and conventional loans, but they help you purchase a home by needing no money for a down payment. Not needing to put cash down is a massive benefit for many homebuyers, but it is offset a bit because many lenders charge a “funding fee” to process the loan. These loans are only available to active military service members and their families, as well as veterans.

USDA Loans Minimum Credit Score 640

The U.S. Department of Agriculture backs USDA loans and, like VA loans, can help you buy a home with no down payment. The geographical areas where you can use a USDA loan are restricted, and most lenders will know what areas qualify. A USDA loan can be beneficial for people looking to buy land to build a house in eligible rural areas or purchasing an existing home. If you have found a rural place you want to live in and are deciding between building vs. buying a house, this type of home loan might be a good option no matter what option you choose.

Jumbo Loans: Minimum Credit Score 700

The maximum amount for a conforming loan (non-jumbo loan) is $548,250. This is determined by the Federal Housing Finance Agency (FHFA). If you need more than that, you will need to get a jumbo loan. Lending such a large sum of money is risky, so mortgage lenders want to see a minimum credit score of 700, sometimes even closer to 720.

The Importance Of Cash In Getting A Loan

The Importance Of Cash In Getting A Loan

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Another factor is how much cash you are bringing to the table. Buying a house with cash is always the best option, as sellers prefer not to worry about a loan approval. If you can’t do that, using cash for a large down payment can help you qualify for a loan with a lower credit score than you usually need.

How To Improve Your Credit Score

Now that you know what credit score you need to get each type of loan, you may be wondering what to do if your score doesn't measure up. The good news is that many different strategies will help. Consider each of the methods found below and decide what you can do right away and what might require a longer-term plan.

Less Debt, More Income

A huge factor in determining your credit score is your debt to income ratio. First, look at what debt you can pay down. Student loans, credit cards, and other loans that may have a high interest rate are great places to start when it comes to reducing your existing debt. Next, think about applying for a promotion at your job to try and get a pay raise. If that doesn't work, think about how you might be able to add a second stream of income with a side job.


Pay your bills each month on time by creating direct withdrawals from your checking account. Remember, payment history is the most impactful part of the credit score calculation. By setting up auto payments, you ensure that bills will get paid whether you remember or not.

Cut The Credit Cards

Don't open new credit card accounts, as that can lower your score. Don't close them either though, as that can reduce it as well. Simply cut the card in half, so you won’t use it anymore but leave the account open. This will make the balance easier to pay down and help your credit utilization rate.

Read The Fine Print

Look at the terms and conditions of your loans, especially your credit cards. Pay the ones with high interest rates down first if you can. This will save on your overall monthly interest payments to all your credit cards.


In conclusion, the credit score you need to buy a house varies by loan and can always be improved. Credit score requirements vary greatly depending on what type of loan you apply for, how much money you are putting into a down payment and many other factors. 

Knowing the minimum for each score by loan type can give a good credit score goal. Understating how to improve your score can help you reach that goal and get the home you want.

About the Author

As a native Washingtonian, Carlos Reyes’ journey in the real estate industry began more than 15 years ago when he started an online real estate company. Since then, he’s helped more than 700 individuals and families as a real estate broker achieve their real estate goals across Virginia, Maryland and Washington, DC.

Carlos now helps real estate agents grow their business by teaching business fundamentals, execution, and leadership.

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