Bankers are becoming a little less fussy about the credit scores they demand from people who want to buy or refinance houses.
In September, the average FICO score fell to 723 for people approved for a mortgage, according to a report from Ellie Mae, a firm that tracks mortgage applications and approvals.
A 723 score is still no easy hurdle, because it demands that people have a far better record than the average person in paying their bills and controlling debts. But it’s the lowest average score since August 2011, suggesting that lenders are becoming slightly more lenient about granting mortgages. At the end of last year, the average score approved for a mortgage was 757.
With lending requirements far more stringent since the housing bust and financial crisis of 2008, many Americans have been left out of the housing market, especially first-time homebuyers. Coming up with sizable down payments has been one issue, and student loans have also dogged young adults. Meanwhile, credit scores of many people fell as they struggled to make mortgage payments and lost jobs.
The average FICO score for American adults was 695 in April, the latest number released by Fair Isaac Corp., which disseminates the FICO scores to lenders evaluating mortgage and other credit applications. That means most people have scores far below the 723 average that lenders have been approving for mortgages.
But scores have been improving slowly since the depths of the housing crisis and recession. In October 2009, the average FICO score was 686, according to Fair Isaac. FICO scores range from 300 to 850, with 850 the highest and an indication that a person is likely to make their loan payments.
The number of people with scores of 800 or above has been rising recently, with about 19.9 percent scoring at that level, according to Fair Isaac. There are also fewer people at the low level of 550 compared to the recessionary period in 2009, but Fair Isaac says some of the improvement in the 550 range comes because people were so troubled with debt they’ve fallen out of the analysis.
The latest 695 average FICO was the highest since 2005, when housing issues first started to show up.
Less-stringent credit requirements recently have been allowing more people to refinance as well as buy new homes. Ellie Mae reports that refinances represented 42 percent of the loans approved. In addition, the lengthy process of getting approved for a mortgage has been declining.