Last month, the average homebuyer’s credit score was at its lowest level in at least four years, according to a report from mortgage software company Ellie Mae, which processed 3.7 million loan applications last year. Borrowers whose mortgages closed in September had an average FICO credit score of 723. That’s the lowest the average credit score has been since Ellie Mae started reporting it in August 2011.
The lower average credit score indicates lenders may be loosening their mortgage underwriting standards, if only a bit. As recent as February, lenders approved mortgage applications from borrowers with an average credit score of 732, but in September 2014, the average score was 726. The average score of applicants whose loans were denied is a bit more telling: Last month, it was 668. At the same time last year, applicants with an average credit score of 694 had their loan requests denied.
For reference, a FICO score between 700 and 749 is generally considered a good credit score (750 and higher on the 300 to 850 scale is considered excellent). The fact that lenders were rejecting loan applicants with an average score of 694 last September shows how tight mortgage availability has been.
Getting Your Credit Mortgage-Ready
You don’t need to have a great credit score to buy a home. For example, consumers who bought homes last month with FHA loans — a federal loan program that can help first-time homebuyers get loans — had an average credit score of 689.
Still, having good credit increases the likelihood that a lender will approve your mortgage application. Plus, the best mortgage rates are available to borrowers with a credit score of 740 or higher. Getting the best rates is important, because with loans as large as a mortgage, small differences in interest rates could cost you thousands of dollars over the life of the loan. That’s why it’s in your best interest to go into the home-buying process with as good a credit score as you can get. Improving your credit score takes time, but if you check it often (you can check your credit scores for free every month on Credit.com), you can see what’s affecting your score and make plans to improve it as much as possible before applying for a home loan.
More on Mortgages & Homebuying:
- Why You Should Check Your Credit Before Buying a Home
- How to Find & Choose a Mortgage Lender
- How to Search for Your Next Home