The 800-and-up credit score club is an elite one: 20.7 percent of Americans have reached this upper echelon of credit worthiness, according to the latest data from FICO, a widely-used credit score rating system.
But, finance experts explain that you don't actually need to have a score in the 800 range to qualify for the best mortgage rates. In fact, the score you should really aspire for is… drumroll, please: 760! Simply put, when you achieve that score, you're "excellent enough" credit-wise and can secure the best interest rates.
"Some banks offer the best mortgage rates with a credit score over 740, others have a 760 benchmark" says Richard Barenblatt, Mortgage Specialist at Guardhill Financial Corp.
So what does that 800 score get you? Well, just bragging rights, Barenblatt says. Phew.
A 740-to-760 score range is much more achievable, especially for those who are still building credit. FICO recently announced that 704 is the average credit score in the United States. About 19 percent of the population is in the 750 to 799 range and another 17.1 percent are in the 700 to 749 range, according to 2017 data.
When is 740 good enough?
While 760 is a safe bet for the best rates, in many cases you can actually have a 740 score and get the best rate.
Let's delve into this!
Six out of 10 home loans in the United States are funded with conventional conforming loans, explains Robert E. Tait, a senior loan officer with Allied Mortgage Group. The maximum loan amount in 2018 for a typical conventional conforming loan is $453,100 and almost all lenders adhere to Fannie Mae and/or Freddie Mac underwriting guidelines, which are mostly similar, he explains.
Borrowers' credit scores affect the rates they qualify for, and when you take a look at Fannie Mae's "Loan Level Pricing Adjustments" table, you'll see that a FICO score tops out at 740 or higher, and that's going to score you the best rate based on credit score factors.
Other factors impacting Loan Level Pricing Adjustments (or LLPAs) include things like loan-to-value ratio, loan size, and whether you're buying an investment property or you plan to live in the residence.
But, an 800 credit score can give you some wiggle room
While you don't need an 800 score to qualify for the best mortgage rate, it can have one advantage: Giving you a cushion if you forget to pay a bill, points out Tait.
"I strongly encourage my clients to be cognizant of their credit scores and always try to keep them as high as possible," Tait says. "Accidents happen, people may sometimes forget to pay a bill on time, and if they do and they have a high median credit score, that one derogatory shown on their credit report will have less impact on their overall credit report."
Consider this: If you're right at 740 and a late payment or collection dings your credit, it could knock you down into a credit bracket that could translate to higher interest rates when applying for a new mortgage, costing you thousands over the life of the loan.
To get specific to your own situation, you can give FICO's "loan savings calculator" a whirl. It layers in factors like the type of loan you're applying for, where you live, and the principal on your house to show you how much extra you'll pay monthly and over time based on your credit score.