If you're looking for the "magic" credit score to qualify you for a mortgage, you'll be looking forever. That's because lenders use different scoring systems to determine your creditworthiness, according to credit rating agency Experian. There are general ranges, though, that most Americans fall under -- and ranges that increase your odds of getting not only the money you need to pay for your home, but also the best interest rates on your loan.
Basics
To better understand the average credit score and mortgages, you need to understand this three-digit number itself. Bankrate reports that your number ranges from 300 to 850, with most Americans falling between 600 and 800. This number represents your payment history. The bulk of the score is derived from how often your payments are made on time and how much debt you owe. Also taken into account, though making up a smaller part of the score, is how long you've had credit, any new credit and your mix of credit (credit cards, personal loans, etc.), according to Experian.
Importance
The higher the number, the better the interest rate on your home loan. That's because, as a snapshot of your payment history, it is an indicator of how likely you'll be to pay back the loan, according to Experian. Bankrate reports that you'll get your best rates if you score at least a 720 -- which, based off of Bankrate's statistics, means that many Americans who fall in the average credit score range are not eligible for the best rates.
Ramifications
You can save a lot of money by being among the Americans toward the higher end of the average 600-to-800 spectrum, according to the Consumer Federation of America. The government agency reports that if you have a 30-year fixed mortgage and a score of 720, you'll qualify for a 5.5 percent interest rate. But if you only have a 580 score, you'll qualify for an 8.5 percent rate. That means that each year on a $100,000 home loan you'll pay $2,500 more with the lower score, which adds up to nearly $75,000 more over the life of the loan.
Differences
Experian reports there are literally thousands of credit-scoring systems used by lenders. But Pat Curry reports on Bankrate that there are some certainties: For starters, each institution has very stringent standards to adhere to with regard to which borrowers get the best terms, and which ones qualify for the less-than-desirable terms. Regardless of the differences between the systems, lenders always focus on the credit score. Even so, because one lender's system may extend the most favorable rates starting at a score of 700, while another may offer the best rates starting with a 690 score, it pays to shop around, Curry says.
Government
If you're trying to qualify for a government-backed Federal Housing Administration home loan, there is a "magic" number -- it's 580. According to FHA Home Loans site from the American Financial Network, a California-based mortgage brokerage specializing in FHA loans, a score of 580 is required to qualify for both a home loan or to refinance. In addition, there are other considerations to qualify through other lenders, including the size of the mortgage compared to your pre-tax earnings, and how long you've been working on a regular basis (in the case of an FHA loan, you need to have at least two years of consistent work under your belt).
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