Know Your Credit

Know Your Credit: Lenders continue to lower their credit benchmarks as the economy rebounds. The average credit score for all closed loans last month was 728, compared to 746 in June 2012, according to mortgage software firm Ellie Mae. That two-year drop has been more pronounced with FHA loans than conventional financing.

FHA loans tend to have the most lenient credit standards. Here's a brief snapshot of the average FICO scores last month for the three major loan types:

Conventional: 755
VA: 708
FHA: 683

Keep in mind two key facts. One is that these are averages. Two is that lenders set their own credit score requirements, which can vary depending on the company, your financial background and more. It's ideal to check your credit well in advance of applying for a loan -- six months, or even longer -- to work toward improving your credit score. (You can pull your credit reports for free once a year to check for problems that are lowering your score, and you can use a free service -- like CreditKarma.com - to monitor your credit score for progress.)

Improving your credit score can help you get a lower interest rate and boost your chances of loan approval. However, a score that's just above subprime (typically at least a 620) could still get you into a home loan. Some FHA lenders may even go as low as a 580 score. That's a big reason why it's so important to understand your lending options.