If you're in the market to buy a home, you're probably going to get a mortgage to pay the purchase price. When you approach a lender to get a mortgage, that lender will likely look at your credit score. This number represents how much risk you pose to the lender if it approves you for the loan, and the lower your score, the harder it is to get approval.
Credit Score
Creditors evaluate a borrower's creditworthiness based largely on the borrower's credit scores. Creditors use one score in particular, the FICO score, as the measuring stick to evaluate the borrower's risk of defaulting on the loan. FICO scores range from between 300 and 850. A high credit score means the borrower is of little risk on defaulting on the loan based on his past credit history, while a lower score represents an increased risk.
Preferred Score
Each mortgage lender develops its own guidelines for what it considers to be a good or bad credit score. However, many lenders consider a 720 FICO score as the division between good and excellent credit, according to LendingTree. Borrowers with a 720 FICO score or higher face the fewest problems obtaining a loan. They also get better interest rates on the mortgage, saving them money in the long term as they pay less in interest.
Lower Scores
Consumers with scores below 720 can still get a mortgage, but are less likely to get good mortgage terms. However, the lower you go, the less likely you are to get approval. LendingTree reports that creditors consider those with credit scores of 620 or higher as reliable borrowers, while those with scores lower than 620 are considered "sub-prime." Sub-prime borrowers face the most difficulty in obtaining a loan, but some lenders consider borrowers with scores as low as 500.
Other Considerations
Credit scores are not the only factor you need to consider when you're looking for a loan. If your score is good enough to meet the lender's lending criteria, you may still be refused a mortgage loan because of other factors. If you don't have a steady income, for example, you're not a good candidate for a loan. Also, according to LendingTree, many lenders prefer borrowers whose total monthly debt payments make up less than 36 percent of their gross monthly income, known as a debt-to-income ratio.
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