Need a Mortgage? A High Credit Score Is More Crucial Than Ever

What's the typical credit score for a mortgage these days?

The New York Fed reports that the typical score for mortgage borrowers jumped to 786 during the third quarter of 2020.

To give you some context, the average FICO credit score in the U.S. is 711, according to the credit bureau Experian. It usually takes a credit score of 700 or higher to be taken seriously by a mortgage lender. (Don't know your credit score? You can easily check it for free.)

The lofty average score for home borrowers could stem from the ongoing refinance frenzy; homeowners have been applying for refi loans at more than double the pace of a year ago, the Mortgage Bankers Association says. Americans who already own a home are more likely to have high credit scores than those who don’t.

Another factor: Lenders have grown more wary of risk, given high unemployment and other economic issues. Meanwhile, the demand for cheap mortgage rates is tapping out many lenders’ capacity to field new loan requests.

High credit score? Front of the line. And the rest? The Fed report shows only a quarter of those who secured a home loan between July and September had a credit score south of 740. Only 10% had scores below 683.

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How you can build your credit score

Even if you're approved for a mortgage, you’ll never be offered a spectacularly low rate without a stellar credit score.

Raising your score is a surprisingly attainable New Year’s resolution. Here are four ways to give it a boost:

1. Let the experts monitor your score

Keeping tabs on your credit score is critical to keeping it in decent shape. With online services like Credit Sesame, you can see your current score, and get access to free credit monitoring.

2. Dispute mistakes on your credit reports

Make sure you’re not getting dinged for credit errors, which happens more often than you might think. Get free copies of your credit reports and comb through them line by line to look for any outdated or incorrect information.

3. Consolidate your debt

Falling behind on your bills is a quick way to sink your credit score. If you’re having trouble making just the minimum payments, consider a debt consolidation loan. You can take out a new low-interest loan and use it to pay off your high-interest debt.

4. Show you can handle credit

Having trouble establishing credit, to build up a good score? A secured credit card can offer a low-pressure way to give yourself some credit history. These cards require a deposit to establish your credit limit. If you deposit $500, that’s your limit. Compare secured card offers to find one with attractive terms.

So your score isn't 786? You can still get a mortgage

As rates have continued to nosedive, it's refinances that have been driving the rush on mortgage applications. And it's not hard to figure out why.

With mortgage rates under 2.7% for the first time, even those with relatively new mortgages can refinance to a lower rate and save. Some 19 million homeowners could cut their housing costs an average $308 a month by refinancing, the mortgage technology and data provider Black Knight recently said.

Don't worry if you're ready to refi but your credit score is under 786. You can still find good deals by shopping around — because rates can vary considerably between lenders. When you compare a minimum of five rate quotes, studies show, you potentially save thousands of dollars in interest over the life of your loan.

Once you find the lowest rate available in your area and for a borrower with your credit score, be sure to lock it.

The closing process can take time: an average 59 days for a refinance loan in November, up two days from the month before, according to mortgage fintech Ellie Mae. By locking the rate your lender quotes you, the interest on your loan is guaranteed — usually for 30 or 60 days.