Most lenders consider a FICO credit score of 740 to 799 to be “very good” and 800 or higher to be “exceptional.” If you want to qualify for a mortgage with the lowest interest rate, aim for a score in these ranges.
The two most important steps to getting a score in that range? Pay your monthly bills on time and reduce your credit card debt.
You have three credit reports, each maintained by the national credit bureaus Equifax, Experian and TransUnion.
These reports list any late or missed payments on certain monthly bills and credit cards from the past seven years. They also list recent bankruptcy filings, foreclosure filings and accounts that have gone into collections. Maintaining credit reports free of these financial mistakes is important when applying for a mortgage.
But your credit isn’t important only when you are applying for a mortgage. Here are other ways the strength of your credit impacts your everyday financial life.
When you apply for any other loan: Lenders will check your score and credit reports when you are applying for auto, student and personal loans. The higher your score, the more likely you are to qualify for a loan with a lower interest rate. A lower rate also means a lower monthly payment, which could save you thousands of dollars on these loans.
When you want a credit card with rewards: If your credit is strong enough, you can qualify for credit cards that come with lower interest rates and valuable rewards programs. These programs let you earn cash back, points or airline miles with every purchase. Banks and credit unions reserve these cards for applicants with strong credit.
When you apply for insurance: In most states, insurers can check your credit-based insurance scores — similar but slightly different from your FICO credit score — to help determine your premiums when you apply for auto or homeowners insurance. With a higher score, you’re likely to qualify for a lower insurance premium.
When you apply for a new job: In most states, employers can pull a modified version of your credit reports when you apply for a job. The modified version doesn’t list your three-digit credit score, but it does show whether you have a history of missed or late payments. It also shows any recent bankruptcies, foreclosures and accounts sent to collections. These financial missteps on your reports might cause some employers to pass you over for that new job.
When you want to rent an apartment: Landlords might check your credit score and reports when you apply to rent an apartment. If they see a history of missed payments, they might reject your application, worried that you won’t pay your monthly rent on time. They might also require a larger security deposit or request that you find a cosigner — someone who will agree to pay your rent if you stop doing so.
As you can see, building good credit is important even when you are not applying for a mortgage.