Understanding credit score ranges as a real estate investor is important since it helps you see whether you qualify for mortgage financing.
Table of Contents
- What Is a Credit Score?
- Why Are Credit Scores Important?
- What Affects Your Credit Score?
- Where Can You Check Your Credit Score?
- What Are Credit Score Ranges?
- How to Buy an Investment Property You Can Afford
- Bottom Line
Your credit score influences many aspects of your life. You’ll need to have a good credit score whether you want to access a loan, get a credit card, or even lease the apartment of your dreams.
With a high credit score, you’ll gain access to a myriad of financing options with lower interest rates. For example, with a credit score of 750 or above, you’ll have many lending options and mortgage loans with favorable terms and interest rates.
As you can already tell, it’s beneficial to know what your credit score and credit score ranges are. In today’s article, we’ll expound on this topic comprehensively.
What Is a Credit Score?
A credit score is a number between 300 and 850 that indicates your credit risk or your likelihood to pay your debts and bills on time. Generally, a higher credit score shows that a borrower poses a lower risk and will more likely pay the debt on time.
Credit scores are used to determine your risk level on debts such as mortgages, loans, credit cards, and bills such as rent and utilities. Lenders will also use your credit score to determine your credit limit, loan qualification, and interest rate.
Related: 3 Requirements for Getting a Loan for Rental Property
What Is a Good Credit Score?
Lending institutions consider a credit score above 700 to be good, and 800 to be excellent. The average borrower’s credit score falls between 600 and 750.
While higher credit scores mean most lenders will approve your loan, creditors can also set their own guidelines on what they consider good or bad credit scores. This majorly depends on the type of borrowers they want to attract. They also take into account how current events, such as inflation, affect their consumers’ credit scores and adjust their requirements appropriately.
Related: How to Buy Investment Property With a Bad Credit Score
Why Are Credit Scores Important?
The world today has become extremely reliant on credit scores to make purchases and other vital financial decisions. While a good credit score will help you access a loan with good interest rates, it’s also important for other reasons.
Here are other crucial reasons why it’s important to maintain a good credit score:
Your Credit Score Affects Where You Live
If you can’t pay for your house outright using cash, your mortgage lender will want to know whether you’ll default on the loan. A bad credit score will indicate that you’re a risky borrower.
If you qualify for a mortgage, your credit score will also affect the interest rate. Remember, the interest rates will affect the monthly payments you’ll make towards the loan. With a low credit score, the lender may reject your loan application or charge a higher interest rate.
Your credit score is also important if you’re looking to rent a house. Landlords will check your credit score to determine if you’ll make your rent payments on time.
Employment Credit Checks
Many employers nowadays carry out credit checks during the hiring process. While employers will use your credit report and not your credit score, they generally want to see whether you’re financially responsible. An employer will be hesitant to hire you if they find out that you’re not.
For example, a low credit score will tell the employer that the salary they’re offering is too low compared to the debt you owe. Other employers will check your credit report when offering a promotion or salary raise, especially for executive or financial-related positions.
Many investors might be shocked to learn that credit scores are used to establish utility services. Utility companies assume that they’re lending you their services for a month and want to be sure that you’ll pay the debt.
Your electric company will check whether you have a good credit score before turning your electricity on. This is replicated in most utility companies including water, internet, cable, and telephone service providers.
Besides personal loans, business loans will also require you to have a good credit score. If you desire to start your own business, such as an Airbnb business, you will likely need a good amount of cash to get started. If you don’t, then you’ll have to acquire a small business loan. One of the business loan requirements is a good credit score.
Related: How Can You Improve Your Credit Score for Financing Investment Properties?
What Affects Your Credit Score?
While each credit score model has its own way of weighing credit scores, most of the factors they consider are more or less the same. We can split them up into the following categories:
- Bills payment history – Did you know that late payment of 30 days or more stays on your credit history for years? This is why it’s important to pay your bills and debts on time. Missing payments or filing for bankruptcy hurts your credit score.
- Credit utilization – How much credit do you owe? Your credit limits are also weighted as heavily as your bill payment history. While the lower the better, it’s recommended to use 30% of your credit limit. Your credit score will respond favorably to this factor.
- Credit age – Your credit history length also affects your credit score. If you’ve had credit for longer, and you have a higher account average age, your credit score will be higher.
- Types of accounts – A “credit mix” considers whether you’re using both installment accounts, such as a mortgage, personal loan, or car loan, and revolving accounts, such as credit cards. Managing both account types responsibly helps you manage your credit score.
- Recent credit activity – This considers whether you’ve applied for or successfully opened a new credit account recently.
Where Can You Check Your Credit Score?
Now that we’ve looked at what credit scores are and the benefits of knowing yours, where can you actually check your credit score?
This is one of the best free credit score services. It provides credit reports from Equifax and TransUnion. The reports are updated weekly. Perhaps the best feature is that you don’t need to provide a credit card for you to register for credit score ranges Credit Karma.
The free Equifax and TransUnion credit score ranges are based on the VantageScore 3.0 model. This is a newer credit scoring method created by three collaborating credit firms that wanted to provide a consistent score across the three bureaus.
While Credit Karma claims not to sell your information to advertisers, it does recommend financial products based on your credit situation.
Experian originally handled credit reports for the Western United States and now prides itself as a leading global information services company. You can get Experian credit score ranges based on the FICO model which is used by most lenders.
Experian also lets you know about the different factors affecting your FICO score. They’ll not only highlight your spending habits but also show you how to save. The best thing about Experian credit reports is that you’ll track all your spending in one place and gain valuable financial insights.
Credit Card Companies
Many credit companies in the US offer their customers, and sometimes non-customers, a free insight into their credit scores. This means you have other options besides those we’ve listed above.
Here is a quick breakdown of some of the most prominent ones:
- Barclaycard – Barclaycard provides its customers with a free FICO score alongside their monthly statements. They also show the different factors that affect the credit score, such as credit utilization ratio and a total of all balances on open accounts.
- Discover Card – Discover Card customers receive free TransUnion FICO credit scores on their monthly statement. Newer users who are still building their credit history may not see their score until they’ve made a few months of credit payments.
- Capital One Card – Capital One has a service called CreditWise that’s available to both cardholders and non-customers. This service is based on VantageScore 3.0. You can get it every month and also get alerts on any changes.
- First Bankcard – First National Bank customers receive a free FICO Bankcard Score 9. But because this score is tailored to credit card lending, mortgage lenders won’t use this score when deciding whether to approve your loan application. However, it still gives you a good idea of your credit situation.
What Are Credit Score Ranges?
While checking your credit score is quite straightforward, merely knowing the number isn’t enough. You must understand how to interpret your score and entire credit report so that you can make the most out of it. This involves understanding the credit score ranges and what they mean to lenders.
The FICO score national average is 711. Based on this, the credit score ranges FICO fall into the following categories:
- 300-579 (Poor) – As you can see, this range is way below the FICO national average. Borrowers whose credit scores fall within this range are considered a high credit risk. Lenders will be less willing to lend them money. These borrowers can only access funding by taking bad credit personal loans.
- 580-669 (Fair) – Still below the national average, borrowers who fall within this range qualify for some loans. However, the borrowers are still considered high risk so the loans they qualify for are likely to have high-interest rates, lower loan limits, and shorter terms. Borrowers within this credit score range may get better terms by choosing secured loans.
- 670-739 (Good) – This credit score range is close to or above the national average and lenders consider it good. Borrowers in this range are considered less risky and may access more favorable loan terms.
- 749-799 (Very Good) – A credit score that’s above average tells lenders that the borrower is reliable and likely to repay the loan on time. Borrowers within this credit score range have access to better loan terms and more competitive credit cards.
- 800-850 (Exceptional) – This is the highest credit score range. Borrowers who fall within the exceptional credit score range have access to excellent loan terms, larger loans, and the most competitive mortgage interest rates.
How to Buy an Investment Property You Can Afford
You’ve learned what credit score ranges are and the importance of checking your credit score. You can already see that it’s important to make wise financial decisions to avoid falling into the risky mortgage credit score ranges. This is why you need to utilize software solutions to help you make smart financial decisions.
This is where Mashvisor tools come in.
Before we can look at which Mashvisor tools help you invest in properties you can afford, book your Mashvisor demo today and access the tools:
Mashvisor Mortgage Calculator
To start with, Mashvisor is an online real estate platform that helps investors make wise investment decisions by providing them with accurate and reliable data. It has a wide range of tools to help investors carry out comprehensive housing market and property analyses. Among the tools is a reliable mortgage calculator to help you account for your mortgage payments.
This tool works hand in hand with the investment property calculator. It helps you calculate a property’s potential return on investment by providing you with important metrics, such as cash on cash return and cap rate. It significantly reduces the amount of time required to carry out these calculations by providing these metrics in a matter of minutes.
Unlike other online calculators, our mortgage calculator is flexible since it allows you to choose the type of mortgage you want to use. For example, you can select either fixed or adjustable-rate mortgages and also pick either 15- or 30-year duration.
The fixed-rate calculations are quite straightforward and can be done by hand. However, when it comes to adjustable-rate mortgages, the calculations are complex and require software.
Luckily, the mortgage calculator is connected to the rental property calculator, meaning any changes or inputs you make are immediately reflected on the property analytics page. You’ll find metrics for the return on investment, monthly property expenses, and your long-term payback analysis.
These features make Mashvisor tools the best for investing within your credit score ranges.
It’s important for any investor to know their credit score ranges so they can identify investment properties within their budget. It also helps you know whether you qualify for a mortgage loan. However, it’s important to understand that lenders may set their own credit score ranges and requirements for loan approval.
Once you understand your financial situation, you can now use Mashvisor tools to invest in property you can afford.
Sign up to Mashvisor today and start your 7-day free trial.