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How low is too low?

rear view of young couple looking at their new house
Serhii Krot / Shutterstock
It often takes a credit score of at least 700 to qualify for a mortgage.

Credit scores of 550 or less are considered undesirable by most lenders. And while a score of 700 is the average, a not-too-far-from-average 650 may not be sufficient to get a mortgage loan.

It often takes a score of 700 or higher to be taken seriously by a lender. Each mortgage company has different standards, and those standards can change, depending on what's happening in the mortgage market.

Applicants with credit scores of 720 or better were turned away by lenders after the subprime mortgage meltdown in 2008. So, a score that's great today might be terrible tomorrow.

Don't know your credit score? Free credit scores are available through Credit Sesame.

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Different rules for federally insured loans

Government-backed mortgages have easier, lower standards when it comes to borrowers' credit scores.

You can have a score of 500 and still land an FHA loan, though you'll have to make a 10% down payment.

To qualify for the Federal Housing Administration's minimum 3.5% down payment, you'll need a score of 580 or better.

Calculate your mortgage payment.

Credit scores and mortgage rates

Young serious man holding papers, reading them attentively, sitting with laptop indoors. Anxious woman standing next to him looking at documents. Unpaid domestic bills, checking documentation
fizkes / Shutterstock
A ho-hum credit score might bring you a higher mortgage rate.

When your credit score is higher than average but still not spectacular, a lender might think there's a greater risk you won't make good on your loan.

To compensate for that risk, a bank or loan company will often saddle you with a higher mortgage rate than someone with a higher score would pay.

A higher interest rate means a higher monthly mortgage payment and steeper total interest charges over the life of the loan.

If your credit score needs work, you'll want to carefully consider whether the cost of a higher interest rate is worth it. You may decide it's better to delay your home purchase to give yourself time to improve your score.

Working on improving your score? Here's how to build good credit.

Need cash? Tap into your home equity

As home prices have increased, the average homeowner is sitting on a record amount of home equity. Savvy homeowners are tapping into their equity to consolidate debt, pay for home improvements, or tackle unexpected expenses. Rocket Mortgage, the nation's largest mortgage lender, offers competitive rates and expert guidance.

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Raising your score

The easiest way to bring up your credit score quickly and snag that mortgage is to obtain copies of your credit reports from the three major credit bureaus (Equifax, Experian and TransUnion) and make sure everything on them is accurate.

If you find any mistakes, dispute the errors so they can be removed.

Also, credit scores have a great deal to do with your credit utilization. If you're using too much of your available credit, that can hurt your score.

Paying down your credit cards to cut your credit utilization can give your credit score a nice boost.

Don't know your credit score? Free credit scores are available through Credit Sesame.

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About the Author

Doug Whiteman

Doug Whiteman

Former Editor-in-Chief

Doug Whiteman was formerly the editor-in-chief of MoneyWise. He has been quoted by The Wall Street Journal, USA Today and CNBC.com and has been interviewed on Fox Business, CBS Radio and the syndicated TV show "First Business."

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The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.