Buying a new home - your credit is even more important these days.

Dear myFICO,

I'm in the market for a house and have recently heard that lenders are getting much tighter with their lending practices, and that even people with good credit are going to find it harder to get a loan. I have a score of 756, should I be worried that I won't get a loan?

San Jose, California

Dear Samantha,

It's true that the sub-prime market collapse has created a ripple effect that is being felt throughout the entire mortgage sector. It's caused lenders to be more diligent with their lending practices and people with bad credit or undocumented incomes are finding it harder to qualify for home loans that were readily available to them at this time last year. However, based solely on your FICO® score of 756, you shouldn't worry about getting turned down for a home loan.

It's important to note that knowing of all three of your FICO scores (one from each of the national credit bureaus) is essential when buying a home. Since you only stated one score, I'm assuming that you haven't checked all three. It's very likely that your mortgage lender is going to check all three of your FICO scores, so you should knows those before applying for your loan. Or worse yet, you may be citing a "generic" credit score that your lender probably isn't using to determine your credit-worthiness. To be certain how your lender is evaluating you, ask him which credit scores he's looking at and what score would qualify you for his best rates.

After you check your FICO scores and know where you stand in your lender's eyes, you can approximate your monthly mortgage payments to figure out if you can truly afford the home you have your eye on. If you have a FICO score of 756 from one of the bureaus, that's pretty good. Many mortgage lenders consider people with a FICO score of 760 or better to be very low-risk clients and therefore offer them their best interest rates. That being said, it might be worth it for you to work to get all three of your FICO scores above 760 before applying for your home loan. That small score improvement could save you thousands of dollars a year and tens of thousands of dollars over the life of your loan! Check out this calculator to enter your loan details and see exactly how much you'd save by waiting until your score reached 760.

You're right that mortgage lenders have tightened up their lending practices, and your FICO scores will play an important role in getting a good loan. Your credit standing is even more vital now than it was a year ago. As lenders are less likely to take on "riskier" clients, people with poor credit will find it harder to qualify for loans that they would have gotten before. Your FICO score of 756 means lenders don't consider you to be a risky client. In fact, only 2% of consumers in your FICO score range ever reach 90 days past due or worse on any credit account over a two-year period. So good luck with finding a home and feel confident that your credit won't hurt your chances of getting a good loan.

myFICO Team

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