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The credit score to get a mortgage has soared — what can a borrower do?

Ethan Rotberg
·4 min read
The credit score to get a mortgage has soared — what can a borrower do?
The credit score to get a mortgage has soared — what can a borrower do?

While the U.S. economy has been getting beaten up by the coronavirus, mortgage rates have been on a stunning plunge. Rates on 30-year fixed-rate home loans hit new lows 16 times in 2020 and earlier this month were averaging a record 2.65%, says mortgage giant Freddie Mac.

But only top-shelf borrowers are offered the very lowest rates. And, partly because lenders have gotten much pickier during the COVID crisis, the average credit score to get a mortgage has risen to its highest level in at least two decades, according to the Federal Reserve Bank of New York.

Wanting to take out a home loan — to buy a house or refinance an existing mortgage? Find out how to make sure your credit score is where it needs to be.

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

3D illustration of a conceptual gauge with needle pointing to excellent. Credit score concept.
Olivier Le Moal / Shutterstock

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

To give you some context, the U.S. average FICO credit score during 2020 was 710, according to the credit bureau Experian. It usually takes a 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 much loftier average score for home borrowers could be a byproduct of the ongoing refinance frenzy; homeowners have been applying for refi loans at around 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 in the third quarter had a credit score south of 740. Only 10% had scores below 683.

4 tips for building your credit score

Happy couple checking bills while using digital tablet in kitchen
wavebreakmedia / Shutterstock

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 goal. Here are four ways to give it a boost:

1. Let experts monitor your score

Keeping tabs on your credit score is critical to making sure it's in decent shape. There are online services that will show you your current score, plus give you 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 balances, including credit card 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

A father and daughter play in front of the house
Lopolo / Shutterstock

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 still averaging around 2.75%, 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 loan deals by shopping around — because rates can vary considerably between lenders. When you compare a minimum of five rate quotes, studies show, you'll potentially save thousands of dollars in interest over the life of your new mortgage.

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.