What Is a Good Credit Score for a Loan?

Qualifying for a loan requires sufficient income for the repayment plan and a good credit score. If you're buying a home, you must also have a down payment. Credit scores, also known as FICO scores, range up to 850 points. The higher your score, the better off you are when applying for any kind of loan.

Identification

Different lending institutions have different considerations on what is a good score for their loans. According to creditscoring.com, Fannie Mae and Freddie Mac consider that any buyer with a credit score above 620 is good, while Lending Tree and Bankrate.com among others consider anything above 750 to be excellent. CBS.com states "The best number to have is 720 or above. If your score is 720, there's really no need to try and raise it because lenders lump you in the same category as folks with a score of, say, 800 or 820."

Significance

Higher credit scores mean lower interest rates for the money you are borrowing. A good credit score, 720 or above, will help you qualify for the best rate possible on any loan. Good credit scores are not the only consideration, but getting a low interest rate without a good credit score is not possible.

Function

Good credit scores function as the foundation for obtaining any type of financing. Keeping track of your credit score is something everyone can do rather easily. You can monitor your credit report online by subscribing to services like identityguard.com, or you can request a free copy of your report from the credit bureaus once each year by visiting annualcreditreport.com.

Considerations

Credit reports are based on your payment history, your outstanding debt, your credit history or how long you've had credit, the types of credit you are currently using, and the types of credit your are pursuing.

Prevention/Solution

Improving your credit score before you apply for a loan will have a significant impact on your monthly payment. There are law firms and other companies who will help you improve your score, for a fee, but you can do it yourself with a little know-how and a bit of patience. Your first step is to order your credit reports from the three reporting agencies, Equifax, TransUnion, and Experian. Dispute any incorrect or outdated information in writing with the agencies. They have 30 days to respond to your request. You can find more information about do it yourself credit repair at creditinfocenter.com.

Resources

• Credit Information from the Government