• My Credit Score is 675 - Is That a Good Score in 2011?

    By Brandon Cornett | © 2013 All rights reserved

    Question: "According to Equifax, my credit score is 675 right now. Is this considered a good score in the 2011 economy? I know a lot has changed since the whole mortgage mess (or so I've heard). So I'm wondering if a 675 FICO score will help me or not."

    When you refer to a good score, I'm assuming you mean one that will help you get a mortgage loan. If that's accurate, then I'd say you're in pretty good shape. You won't qualify for the lender's lowest interest rates with a 675. But you should at least be able to get approved for a loan.

    The last time I checked, the average credit score in the U.S. was around 680 (on the FICO scale). That means you are a little below average, at least with your Equifax number. As a result, you'll pay more interest on a loan than a person with excellent credit.

    You may have to provide more documentation as well, so they can verify your assets and income. But that's not a big deal. The main thing is that you can get approved for a loan. And with a credit score of 675, I think you stand a pretty good chance.

    Credit Score is One of Several Criteria

    Of course, there are other factors to consider as well. Your credit score is a big part of the qualification process, but it's certainly not the only part. Here are some other questions you should answer, to get an idea of where you stand:

    • How much of your income goes toward your various debts? (more)
    • How much house can you afford with your income? (more)
    • How much of a down payment do you have? (more)
    • Will you use a conventional or government-backed loan? (more)
    • Does the lender require additional cash reserves for closing? (more)
    • One of your credit scores is 675, but what about the other two scores?

    Here's something else you should know. Fannie Mae is an organization that buys mortgage loans from direct lenders, such as Wells Fargo and Citi. So if a lender wants to sell their loans to this organization, they must adhere to the borrowing / underwriting guidelines established by Fannie Mae. The minimum credit score is 620, and with a 675 you are clearly above that mark.

    The difference between 675 and 720

    With a bit of effort, you could push your 675 credit score into the 700+ range. You would benefit from this in two ways. First of all, you'd have an easier time getting approved for a mortgage.

    Secondly, you would probably qualify for a lower interest rate as well. This second benefit could save you a lot of money over time, and even a good chunk of change at the monthly level. Here's an article that shows how you can save money by having a higher credit score.

    How do you improve your score? You would do so by focusing on the two biggest factors in the pie chart below: payment history and amounts owed.

    FICO scoring factors

    You can optimize the first category -- "payment history" -- by paying all of your bills on time going forward. In particular, I'm referring to the accounts that show up on your credit reports (credit cards, retail cards, auto loans, personal loans, etc.). You can optimize the second category -- "amounts owed" -- by reducing the outstanding balances on your credit cards. If you do these things, your 675 credit score might someday be a 720 or higher.

    Disclaimer: The FICO scoring chart above comes from information published by MyFICO.com. This is the company that created the FICO scoring model. Likewise, these tips for boosting your score have been adapted from a fact sheet published by that company. I cannot guarantees what will happen to your score, if you follow the suggestions made above. There are too many variables at work, such as the length of your credit history and the number / nature of derogatory items on your reports.

    Get Pre-Approved to Find Out

    The only way to truly know where you stand is to apply for a loan, or to get pre-approved by a mortgage lender. Even if you get turned down, you'll at least find out what you need to work on. Is your credit score too low? Do you have too much debt? Not enough money in savings? Inadequate employment history? You'll find out during the pre-approval process.

    If you do get turned down by one lender, don't stop there. Work on whatever deficiencies they pointed out, and then try again (perhaps with a different mortgage company).

    Here's the bottom line. A 675 credit score is good enough to qualify for a mortgage in 2011. It just depends on the other factors we discussed. What's your debt-to-income ratio? How much of a down payment can you make? Can you document your employment for the last couple of years? Do you have extra money in the bank for cash-reserve requirements, if the lender has such requirements? These are some of the big-picture questions you need to address.

    I hope this answers your question. If you want to learn more about any of the things we discussed in this article, just do a topic search at the top of our main page. You'll have access to more than 1,000 articles if you do that. Good luck!

Mortgage Rate Alert

30-year mortgage rates are expected to remain low into the first half of 2013.