June 28, 2018
What is considered good credit? Do you know what credit score ranges are considered the best? Or which credit scores are considered marginal or even what lenders consider to be bad credit?
There are specific credit score rules in HUD 4000.1 that define who may be approved for the lowest down payment for an FHA mortgage loan, and specific ranges of FICO scores that require more money down. And finally there are the credit scores that are simply not eligible for the FHA home loan program.
But these ranges don’t really address what is considered to be good or bad credit. They are simply the credit score numbers that make you eligible for the lowest down payment, a higher down payment, or no FHA loan approval at all.
FHA loan requirements for FICO scores do not reflect your lender’s standards, which may or may not be higher than what’s listed here as an FHA minimum score.
The FHA loan credit score range for the lowest possible down payment requirement of 3.5% of the adjusted value of the home is 580 or higher. The FHA loan credit score range for a higher down payment is for FICO scores between 500 and 579.
FHA loan approval is not permitted for applicants with FICO scores lower than 500 no matter what individual lender standards might be.
In both FHA loan FICO score ranges for loan approval, lender requirements may and often do apply. Many lenders may require applicants to have FICO scores in the mid-600s for the best terms.
Even with all of this, the issue of what’s considered good credit versus bad credit is still not addressed. What specific FICO score ranges equal good, bad, or marginal credit? Using the FICO score rating scale published by the credit reporting company Experian, ranges are as follows:
- 800 or better is considered Exceptional credit. 850 is the highest FICO score on this scale.
- 740-799 is labeled as Very Good credit.
- 670-739 is rated as Good credit.
- 580-669 is rated as Fair credit.
- 579 or lower is rated by Experian as Poor credit.
These ranges do not tell the entire credit story-for example, low credit scores are not always the result of financial irresponsibility. Sometimes low credit scores indicate a lack of credit or a lack of recent use of credit. Having only recent credit can also be a factor.
FHA home loans are designed to have more flexible terms and conditions for borrowers who have qualifying FICO scores and meet lender requirements. Don’t be discouraged by a credit score range that seems lower than you expected-there are ways to improve your credit and become a more attractive borrower.
If you are concerned about how to prepare for an FHA mortgage loan, consider calling the FHA at their toll-free number (1-800 CALL FHA) to request a referral to a local HUD-approved housing counselor who can offer advice on how to properly get ready for a new home loan or FHA refinance loan.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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