Published in: Credit Cards | Nov. 30, 2019

4 Reasons Why Homeowners Have the Highest Credit Scores

By:  Lyle Daly

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Does being a homeowner boost your credit score?

When we analyzed the average credit score in America, it was immediately apparent that being a homeowner makes a difference.

Among consumers who had the highest credit scores, in this case a VantageScore of more than 750, 73% were homeowners, and only 27% were renters. With lower VantageScore ranges, it was the opposite. Renters made up 84% of the people with VantageScores between 300 and 550 and 72% of those with VantageScores between 551 to 600.

A laughing man swinging his daughters in the air in their backyard.

Image source: Getty Images

Is buying a home good for your credit in itself, or are there other factors involved? Here's exactly why homeowners tend to have the highest credit scores.

1. It's difficult to buy a home with bad credit

To get a mortgage, you need to meet the lender's minimum credit score requirements. On a conventional mortgage that you get from a bank, you'll typically need a score of 620 or higher. Other types of mortgages can have lower minimums, some as low as 500.

Also keep in mind that just because you reach a lender's minimum doesn't guarantee you'll be approved. Mortgage lenders look carefully at your entire financial profile. Your credit score is one part of that, and the higher it is, the better your chances of qualifying for a mortgage.

Because it's hard to get a mortgage with bad credit, adults with the lowest credit scores usually remain renters.

2. People work on their credit before applying for mortgages

It's common knowledge that a higher credit score will help you get a lower interest rate on a mortgage. And because even fractions of a percentage point can save you tens of thousands of dollars over the years, prospective homebuyers usually work on their credit as much as possible before applying for mortgages.

Renters can certainly also benefit from higher credit scores. Their rental applications are more likely to be approved, and they can qualify for lower deposit amounts. But of the two groups, homeowners have more financial motivation to improve their credit scores.

3. Homeowners are older

Older adults have higher average scores on both the FICO® Score and VantageScore systems. The average FICO® Score of the youngest age group is 88 points lower than that of the oldest. With VantageScores, it's an even greater difference of 95 points.

There are several reasons for this, with one of the most significant being that the older you are, the more time you'll have had to build a positive credit and payment history.

As you'd expect, homeownership rates are much higher among older adults. Although there are exceptions, young adults usually prefer the flexibility of renting and aren't financially ready to buy a home. After they've attained higher incomes, saved more, and found a place they'd like to settle, then they may start thinking about becoming homeowners.

4. Homeowners have a more diverse credit mix

Credit mix is considered a highly influential category in calculating your VantageScore, and it also accounts for 10% of your FICO® Score. Your credit mix refers to how many different types of credit accounts you have, such as credit cards, auto loans, and mortgages.

Homeowners, of course, have mortgages, unless they've paid them off or were able to buy a home without borrowing money. Renters obviously don't, meaning that this is one scoring criteria where homeowners have an advantage. A mortgage adds diversity to your credit mix, which can give your credit score a boost.

You don't need to buy a home to have great credit

For those of you who are renters, there's some good news here. Only one part of homeownership directly relates to your credit score, and that's the fact that a mortgage is good for your credit mix.

While being a homeowner can be good for your credit, it's not a requirement. It's entirely possible to reach a high credit score as a renter, and in fact, this is a smart goal to have before you buy a home. You'll have an easier time shopping for a mortgage, and you'll save money by qualifying for the best interest rates.

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