Credit Scores and Mortgages: The Complete Guide
Your credit score is one of the most important factors in mortgage approval and the interest rate you'll receive. Understanding how it works can save you thousands.
What Is a Credit Score?
A credit score is a three-digit number (300-850) that represents your creditworthiness based on your credit history. Lenders use it to assess lending risk.
Credit Score Ranges
Exceptional (800-850): Best rates available Very Good (740-799): Excellent rates Good (670-739): Competitive rates Fair (580-669): Higher rates, may need FHA Poor (300-579): Difficult to qualify
How Credit Scores Are Calculated
Payment History (35%): On-time vs. late payments Credit Utilization (30%): Debt vs. available credit Credit History Length (15%): Age of accounts New Credit (10%): Recent applications Credit Mix (10%): Variety of account types
Minimum Credit Scores by Loan Type
Conventional Loans: 620+ typically required FHA Loans: 580+ for 3.5% down, 500-579 for 10% down VA Loans: No official minimum, but 620+ recommended USDA Loans: 640+ recommended Jumbo Loans: 700+ usually required
How Credit Score Affects Your Rate
A higher credit score can save thousands:
Example on $400,000 loan:
- 760+ score: 6.5% rate = $2,528/month
- 680 score: 7.0% rate = $2,661/month
- 620 score: 7.5% rate = $2,797/month
That's nearly $270/month difference between excellent and fair credit.
Checking Your Credit Score
Free Options:
- AnnualCreditReport.com (official free reports)
- Credit card company perks
- Banking apps
- Credit monitoring services
What to Review:
- Verify all information is accurate
- Check for errors or fraud
- Understand negative items
- Monitor regularly
Improving Your Credit Score
Before Applying for a Mortgage:
Quick Wins (30-60 days)
- Pay down credit card balances below 30% utilization
- Become authorized user on established account
- Request credit limit increases
- Correct errors on credit report
Medium-Term (3-6 months)
- Pay all bills on time without exception
- Don't close old credit cards
- Avoid new credit applications
- Reduce overall debt
Long-Term (6+ months)
- Build credit history length
- Diversify credit types
- Establish pattern of responsibility
- Maintain low utilization
Common Credit Mistakes to Avoid
During Home Shopping:
- Don't open new credit cards
- Don't make large purchases on credit
- Don't co-sign loans
- Don't let accounts become delinquent
- Don't close credit accounts
Credit Report Errors
If you find errors:
- Dispute with Credit Bureaus: File official dispute
- Contact Creditor: Reach out directly
- Document Everything: Keep records
- Follow Up: Ensure corrections are made
- Get Confirmation: Verify updates appear
Working with a Mortgage Professional
Experienced mortgage brokers can:
- Advise on credit improvement strategies
- Find programs suited to your score
- Time your application optimally
- Explain how your score affects options
- Help you understand the approval process
Ready to explore mortgage options? Connect with professionals who understand credit requirements and can guide you to the best loan programs.