After years of building credit, making payments on time and managing their money well, some people find themselves with credit scores of 800 or higher.
FICO scores range from 300-850 – so getting in the 800s can be a tough feat, and it can often take a decade or more to build credit up to that level. According to FICO, nearly ⅕ of consumers have a FICO score of 800 or more, a higher rate than just a decade ago.
Building a credit score of 800 is a long, difficult process. Fortunately, there are benefits to having a higher credit score.
For example, a high credit score could mean large savings when it comes to a mortgage. Higher credit scores will often lead to lower monthly payments, and it could make the entire home buying process quicker and easier.
Having a high credit score makes you an attractive option for lenders. Not only will you have an easier time getting approved for a loan, but you will likely have access to low rates.
Also, having a high credit score gives you more negotiating power, and you may even have more room in negotiating closing costs and other fees associated with closing.
Even lower credit scores that are just below 800 still help home buyers get more affordable housing.
Importance of Higher Credit Scores
While having a credit score of 800 seems lofty, having scores in the 700’s can also help home buyers get lower mortgage rates.
Many loan programs have a minimum required amount to get approved for a mortgage. For example, most lenders will require a credit score of 580 to get approved for an FHA loan. Other programs, like USDA mortgages and conventional mortgages, will require scores of at least 620.
Even though home shoppers only need the minimum amount, having a higher credits score can work wonders.
Depending on your planned downpayment, your credit score and the current mortgage rates available, your mortgage rate could be lower, or higher, than the national average.
For example, a potential homeowner with a credit score of 760 who is planning on making a downpayment of 20 percent will have a lower mortgage rate than someone with a score of 620 putting down 10 percent.
The size of the mortgage rate you can get depends on other factors as well, but keeping a high credit score is the best way to ensure buyer-friendly rates.
Small Credit Changes Matter
Is having a credit score of 820really any better than having a score of 780 when it comes to how mortgage lenders look at someone? Not exactly.
Because of how credit scores are grouped by lenders, some changes in credit aren’t going to affect your eligibility or rates. While a score of 820 is certainly better than 780, lenders will look at the two home buyers as credit equals.
In many cases, the size of the downpayment is the only thing that is going to determine a difference in available mortgage rates for home buyers with such credit scores.
However, keeping a high credit score is still important.
Each grouping of credit scores has specific mortgage rates given by different lenders. This means that you will be offered a lower mortgage rate if you are in a better credit score group. But the grouping can also frustrate some home buyers.
A credit score of 779 is going to be grouped differently than a credit score of 780. Even though they are just one point away, the credit score of 779 is going to be associated with higher mortgage rates while the score of 780 will get the same mortgage rates as a score of 820 would.
Raising your credit score by one or two points can make a huge difference. While going through the home buying process, don’t make any big purchases or open new credit cards. Also, be sure to communicate with your lender on how to improve your credit score. Every little change can count.