What Credit Score Is Needed for Home Loan In Illinois?

A credit score is one of the major factors lenders look at during the home buying process.

But, do you know the minimum credit needed to buy a house in Illinois? A 580-620 minimum credit score is required for a home loan in Illinois. Government-backed loans require a minimum score of 580, while conventional loans require a minimum score of 620.

People with higher scores stand a better chance to secure a mortgage at an attractive interest rate.

Well, to get the best interest rates on mortgage, prospective home buyers should aim to have a FICO score of 740 or above. But this number is not universal. The minimum score really depends on the type of loan and the lender’s requirement.

In this article, we will explore some nuances of a good credit score, how to check your score, and how to improve it before applying for a mortgage. In the end, you’ll see whether you’ve got the credit needed to buy a house in Chicago, with the type of loan you’d prefer.

What Is A Good Credit Score?

A credit score is a 3-digit number ranging from 300–850. Credit scores are used by lenders to make decisions on whether or not to offer you a loan such as a credit card or mortgage. They also help determine the terms of the credit, including interest rates and down payment. This magic number usually shows your potential credit risk and ability to repay loans. The higher your score, the higher the chances that you’ll be a responsible borrower.

Typically, lenders, banks, retailers, landlords, and other financing companies share your financial information periodically with the three major credit bureaus (TransUnion, Equifax, and Experian). These credit reporting agencies then use the data listed on your credit reports to calculate your credit scores by using the FICO (created by Fair Isaac Corporation) or VantageScore credit scoring system.

Since each of these reporting agencies uses different criteria to list and score your financial data, your score may fluctuate from one credit bureau to another. Your score may also change periodically depending on your credit activity.

Why Your Credit Scores From The Credit Bureaus May Be Different

Credit Scoring Model Used: Different credit referencing bureaus use different credit scoring models, with the two main models being FICO and VantageScore. While these models use similar parameters from your credit history, each has its own formula to weigh each factor.

• Information Provided To The Credit Bureaus: Since lenders are not obligated to share your financial data with these bureaus, there are possibilities that the data shared may be different across creating differences in your scores.
• Errors On Your Credit Report: One bureau’s credit report may have errors, that may throw off your credit score when compared to reports from other bureaus. Any error in your credit report should be reported immediately to avoid harm to your credit score rating.
• Outdated Data: Credit data should be accessed and updated regularly. If one of the bureaus uses outdated credit data, there may be some discrepancies in your credit scores.

What is A Good FICO Score?

Although credit score rating varies depending on the credit scoring model, there is a general consensus on various credit score ranges.

FICO Credit Score	Range	Can Get A Mortgage?
Very Poor	300-499	No
Poor	500-579	No
Fair	580-669	Yes
Good	670-739	Yes
Very Good	740-799	Yes
Excellent	800 +	Yes

Most mortgage companies use this FICO grading to approve or deny house loans. Typically, most lenders require a minimum credit score of either 580 for government-backed FHA loans or 620 for conventional loans. But people with higher scores are bound to enjoy better mortgage terms, including high dollar limits, lower interest rates, and longer payment periods. A recent study showed that the average FICO Score for someone with a mortgage in 2020 was 753, which falls in the VERY GOOD bracket.

What Is A Good VantageScore?

VantageScore uses similar parameters from your credit history to calculate your credit score. However, this scoring model has been expanded to capture the data for more users including students and immigrants who may only use credit cards sparingly. Here’s a look at how Vantage Score rates its credit scores:

Vantage Credit Score	Range	Can Get A Mortgage?
Very Poor	300-499	No
Poor	500-600	Yes/No
Fair	601-660	Yes
Good	661-780	Yes
Excellent	781-850	Yes

What Factors Affects Your Credit Score?

Various factors affect how your credit score is calculated depending on the credit scoring model. Each factor has its own percentage value in a credit score. Some of the elements that impact your credit score include:

• Credit utilization rate
• Payment history of loans and credit cards
• The total debt on your portfolio
• Type, age, and number of credit accounts
• Balances on your active credit
• Number of inquiries for your credit report, except soft inquiries
• Public records such as bankruptcy
• Number of new, recently opened credit accounts

Benefits of A Good Credit Score

A good credit score can unlock multiple financial benefits, making it easier for you to save money and make your financial life easier. A higher credit score means that you have more options when seeking house loans and credit card loans from various financial companies. But that’s not all! Let’s look at some of the incredible benefits of having a good credit score.

• Qualify for excellent credit card deals: A strong credit score allows you to access some of the most rewarding credit cards in the market. You also get lower interest rates, helping you to save significant amounts of money over time.
• Access to a wide variety of loan products with appealing terms: If you have a high credit score, you can access a wide variety of loan products with higher dollar limits to help you finance big purchases.
• Higher loan and credit approval: High credit scores show reduced risks to the lender. This means that you have higher chances of approval for your loan, mortgage, or credit card application.
• More negotiating power: A good credit score means that you can shop around for the best deals in town. You can leverage this to negotiate for better terms from your preferred lender.
• Easier approval for rental houses and apartments: Today, more landlords are using the credit score as part of their tenant screening process. If you have a good credit score, you have higher chances of getting a rental house or apartment.
• Incredible rates on car and homeowner’s insurance: An above-average credit score allows you to get a reasonable deal on a car and home insurance.

How to Check Credit Score?

Every year, you are entitled to access a free credit report from the 3 major credit bureaus. These reports help you assess your past and current credit status, check for any inconsistencies and errors that may affect your score and gain meaningful insights into some of the parameters affecting your credit score.

You can check your credit scores in several ways:

• You can request your free annual credit report from the 3 national credit reporting bureaus (Equifax, Experian, and TransUnion) by visiting AnnualCreditReport.com.
• Purchase credit score directly: If you already requested your free annual credit report, you can access another copy by buying from any of the three credit bureaus or other provides such as FICO.
• Visit a free credit scoring website: There are various sites that offer free credit scores to help you understand your financial health. However, it important to look at the terms and conditions before sing up.
• Check with your credit card issuer or lender: Many credit card companies have started offering complimentary credit scores to their customers. This can be accessed either by login into your account or through your monthly statement.
• Request from a non-profit credit counselor: The National Foundation for Credit Counselling has non-profit credit counselors who can help you access your credit score and help you break down the details for you.

What Are Some Of The Uses Of Credit Reports?

• Determining creditworthiness
• To analyze all loan and credit accounts under one platform
• Reporting errors on the report
• Reviewing missed/late payments
• Checking the credit score online
• Making effective financial decisions, etc.

What Is the Average Credit Score in Illinois?

According to a recent report by Experian Consumer Credit Review, Midwestern states such as Illinois have some of the highest credit scores. With a national average FICO score of 710 in 2020, Illinois had a credit score of 716, which was well over the national average. This is a 7-point increase from the 2019 credit score of 709.

This means that most residents in Illinois have better chances of access to loans such as credit cards and mortgages. More affluent cities and villages such as Chicago, Naperville, and Glen Ellyn have higher average credit scores.

How to Improve Credit Score?

You can improve your credit score by practicing several consistent habits that are pivotal in keeping your credit on track. Some of these include:

• Pay your bills on time: Payment history is perhaps one of the biggest factors that affect credit scores. Paying loans, credit cards, rent, phone bills, and other utility bills on time improves your credit score and is considered a good predictor of future performance by most lenders.
• Make frequent payments: Making micropayments throughout the month ensures that the credit utilization is kept low, benefiting your score right away.
• Ask for higher credit limits: Higher credit limits help lower the overall credit utilization which improves your credit.
• Dispute errors on your credit report: Errors in your credit report can pull down your score. You should request a free credit report from the three major credit bureaus and dispute any mistakes within 30 days.
• Become an authorized user: If you have a thin credit file, you can ask a friend or relative with a long record of responsible credit card use to add you as an authorized user in one of their accounts. This can significantly lower your credit utilization and give you longer credit history.
• Don’t apply for new accounts too often: Frequent loan applications create hard inquiries on your report that may have adverse effects on your score.
• Keep credit cards open: Many people make the mistake of closing their credit cards in a bid to improve their credit profile. This increases the overall credit utilization ratio and could lead to a lower score.

The Bottom Line?

Credit scores are an important facet of any personal financial planning. Good credit scores can open up a bunch of benefits including an increased likelihood of getting approved for competitive mortgages and credit card loans. You are also more likely to get higher dollar limits to help you finance big purchases while still saving thousands of dollars from better loan deals.

If you are in Illinois, having a good credit score can help you own or rent a home or apartment in some of the most opulent neighborhoods. With an average credit score of 716, the competition for credit facilities in Illinois is cutthroat. It is therefore important that you keep your credit score above this average to increase your chances for your next home purchase.

If you have any questions or would like to talk about your situation, you can call or text me any time. Thanks for reading.