Buying a House With a Credit Score of 656

Reader Question: Can I buy a house with a credit score of 656?

In short, yes. Buying a house with a credit score in that range is certainly possible. If you have no other issues with your finances, then a score of 656 should not stop you from getting a mortgage loan for your purchase.

But, as always, there are some things to keep in mind here. I'll shape them into bullet points for easy digestion, with some helpful links to related info...

• Mortgage lenders will use your credit score and other criteria to decide whether or not to give you a loan. That much is obvious. But they'll also use your score to determine what kind of interest rate they'll offer you.
• You can probably qualify for a mortgage and buy a house with a credit score of 656 without much trouble. But you certainly won't get the best interest rates with a score in that range. These days, home buyers need a higher score to qualify for the best rates.
• Depending on who you ask, the average credit score in this country is somewhere between 670 and 700. So by that definition, you are slightly below the national average.
• The credit score needed to buy a house will vary from one lender to another. There is no universal "cut off" above which you can get a loan, and below which you cannot. Most lenders have increased their standards in this department, as the result of tougher lending restrictions imposed by the federal government.
• In the past, a person with a credit score of 620 or below was considered to be a subprime borrower. Scores in the 620 - 650 range were considered good. A 720 or above was considered excellent. But all of this has changed in the wake of the subprime mortgage mess. Basically, all of the categories have been shifted upward.
• By current standards, some lenders will consider a score of 656 to be in the subprime range. If they lump you into this category, they may not approve you for a loan. And if they do approve your application, they'll stick you with a much higher interest rate (than somebody with a good or excellent score).
• By increasing your credit score even by a few points, you could qualify for a better interest rate and therefore save yourself money in the long run. Here are some tips for boosting your score.

Conclusion and Going Forward

Hopefully I haven't overwhelmed you with all of this information. Let me sum it all up...

You can probably find a willing lender without too much trouble. But you won't get the best rates with a score of 656. Lenders will tack on more interest for a score in that range than they did several years ago.

Some lenders may even consider you a subprime borrower by today's standards, where they would not have done so a few years ago. The definitions of "subprime" ... "good" ... and "excellent" have been shifted upward over the last two or three years.

If you can afford to wait a few months before buying, you can use that time to improve your credit score and thus qualify for a better rate. This could save you a lot of money over the life a loan, so it's my personal recommendation. It really doesn't take that long to improve a credit score. If you start pay all of your bills on time, pay down your high-interest debts (such as credit card balances), those two things alone will boost your score over time.

Hope that helps. Good luck!