In order to get a mortgage, you will need good credit, but is excellent credit necessary? Were you even aware that there was a difference between excellent and good credit? While both terms will typically allow you to obtain a mortgage, excellent scores will provide you with a few more benefits. Today excellent credit is slightly harder to obtain, but many people do find it possible with diligent effort.

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What is Excellent Credit?

 

Excellent credit is typically any score that is over 750. The highest that any score can go is 850 and very few people have obtained that score in their lifetime. In fact, the average score is currently around 660, which is considered poor credit and will make it difficult to obtain any type of mortgage. In order to be considered as a part of the excellent group of consumers, your credit score needs to be above 750. Scores above this number signify that the borrower is much less likely to default on a loan and is rewarded for that by being quoted much lower interest rates than those with lower scores.

 

What is Good Credit?

 

Good credit is typically substantial enough to land you a mortgage, but you will pay a slightly higher interest rate than your neighbor with a credit score that is around 750. Good credit typically ranges between 720 and 750. These numbers signify that you are a stable borrower and have a low risk of default on your loan. The difference in the interest rate that you would be charged if you were in the good credit category as opposed to the excellent category is around .5 percent, which can amount to several hundred dollars per month, depending on the principal amount of your loan.

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How other Factors are Considered

 

Your credit score is not the only factor considered when you apply for a loan. It does have the largest bearing on the interest rate that you are charged, but it is not the sole reason for approval or denial of a loan. In addition to your credit, lenders will look at your actual payment history, amount of debt, employment history and your income. If these factors are strong and your credit score is mediocre, you might still be eligible for a loan; your interest rate will likely be affected though.

 

Pushing your Credit Score to Excellent

 

If you are in the market for a home or will be soon, it is time to start focusing on your credit. The largest portion of your score is based on the timeliness of your payments. If you have even one late payment in the last 12 months, you can expect your score to be less than excellent. In the year or so leading up to a home purchase, make sure that you are making all payments on time, that your percentage of outstanding debt compared to available credit is low and that you avoid applying for new credit. This will allow your credit score time to move up into the excellent category, allowing you to obtain the lowest interest rates that are available.

 

Everyone is entitled to a free credit report from all three credit bureaus once per year. It is a good idea to keep an eye on each of the bureaus to see what is reporting. Doing this will give you an accurate view of how much debt you have outstanding and if any payments have reported late in the last year. You will not be able to see your actual credit scores, but knowing how your credit lines are reporting and what you have outstanding will give you a good idea of where you stand when it comes to applying for a mortgage.

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