1 in 3 Americans Have Credit Scores Below 620

With one-third of all Americans in possession of FICO credit scores below 620, it has created a huge challenge to qualifying for a mortgage or home refinance. Borrowers under 620 are generally considered sub-prime.

The FHA says it will only guarantee loans to qualified borrowers with FICO scores of at least 580. Many banks—nearly three dozen mystery-shopped by the National Community Reinvestment Coalition (NCRC)—would not even offer applications for FHA-guaranteed loans if the FICO was less than 620. This is a violation of the Federal Fair Housing Act and NCRC has filed complaints.

This window, however of 580 to 620, is a narrow one at best and if you have buyers who fall into this murky range, additional requirements will be made of them in terms of things like increased down payment amounts. With only a scant 1.3% of all loans going to those with scores under 600, getting clients to realize the importance of staying above that 600 mark has never been more important.

Loans currently have the best credit scores in FHA’s entire history with more than half—57.2%—going to borrowers with FICO scores above 680. And the FHA insures nearly 40% of all home loans and about 10% of all refinancings. That is, at least, good news for the long run, as it suggests we will not repeat our recent history of having millions of sub-prime loans going into default and flooding the foreclosure market. In the short term, it can be one more hurdle in getting a short sale or traditional real estate transaction to close.