Regardless of what you may have heard, getting a mortgage with bad credit is possible. There are other factors besides your credit score that can help tip the scales in your favor. Follow these steps and learn how to increase your chances of qualifying for the best mortgage possible and getting a home of your own.
What Is a Bad Credit Score?
One factor that lenders will rely on to evaluate your mortgage application is your credit score. This is a three-digit number ranging from 300 to 850 that is meant to represent how likely you are to pay your bills. In general, a credit score below 620 is considered to be bad.
Mortgage lenders will rely on one of two credit scoring systems to find out your score — FICO (Fair Isaac Corporation) or VantageScore 3.0. Each system establishes a credit score range and assigns ‘grades’ from Very Poor to Exceptional/Excellent. Where you rate on the scale will determine how good/bad your credit is.
| FICO Score Ranges | VantageScore 3.0 Ranges |
| Very Poor – 300 to 579 | Very Poor – 300 to 499 |
| Fair – 580 to 669 | Poor – 500 to 600 |
| Good – 670 to 739 | Fair – 601 to 660 |
| Very Good – 740 to 799 | Good – 661 to 780 |
| Exceptional – 800 to 850 | Excellent – 781-850 |
Your credit score is primarily determined by five factors: your payment history, how much money you owe compared to your available credit, the age of your credit history, your credit mix and how many credit accounts you have.
Your credit scores can change over time based on your financial position. For instance, throughout the pandemic, credit scores have increased thanks to lockdown measures that led to fewer spending opportunities and COVID-19 relief payments that kept many people from missing out on debt payments.
The average FICO score was 716 as of April 2021, eight points higher than in April 2020. The good news is that consumers with FICO scores in the Fair range saw the largest improvement, increasing 20 points from an average of 581 to 601, bringing more potential homebuyers into the minimum range required by many lenders.
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Source: https://money.com/how-to-get-a-mortgage-with-bad-credit/
