If you’re thinking of buying a home, you’ve probably been thinking a lot about your credit score as well. Credit scores control so much of what we do in the world of finances, but what does your credit score really have to do with your mortgage? Here are three ways that your credit score could impact your mortgage application.
The first thing your credit score tells a lender is whether they should lend to you at all. In some cases, if you have a very low credit score, you may not be able to obtain a mortgage at all. That’s because a low credit score paints the picture of a riskier borrower and is usually indicative of someone who made poor financial decisions in their past.
Different lenders will have different criteria for determining safe and unsafe lending situations. Typically, if you have a score below the 600 mark, you’ll have trouble obtaining a mortgage.
If you’re worried about a low credit score, don’t despair – you can still get a mortgage, you just might have to work a little harder to get one. Or, you may be limited in the types of mortgages available to you. For instance, you may not be able to secure a conventional loan, but you may be able to get approved for an FHA loan, which offers less stringent lending criteria, including credit scores.
Some lenders will still lend to people with lower credit scores (just make sure you’re approaching legitimate lenders and not mortgage scam artists). They’re often known as “alternative lenders,” “private lenders,” or “bad credit lenders.” Or, if time is on your side, you can work toward building up your credit score so that when it comes time to take out a mortgage, your score will be more appealing to lenders.
The second thing a lender in Idaho or Colorado learns from your credit score is which types of mortgages you qualify for. If a lender sees you as a higher risk, they won’t necessarily be willing to offer you just any old mortgage.
In most cases, if you have a credit score of less than 620, you won’t qualify for a conventional mortgage, as mentioned earlier. In this case, you may have to look at different loan options that may be more lenient when it comes to the type of home loan available for bad credit borrowers in Washington and Oregon.
In addition, if you have a lower credit score, you may have to make a larger down payment in order to qualify for the type of mortgage you want.
The final thing that a lender learns from your credit score is what type of interest rate they’re willing to offer you. Not only does your credit score affect your ability to get approved for a mortgage, but it also affects the mortgage interest rate you are offered. As a general rule, the higher your credit score, the lower the interest rate.
However, just because you have a high credit score, that doesn’t mean you’ll automatically get a great mortgage rate. There’s more that goes into the price of a mortgage than just the interest rate, so watch out for additional factors like extra fees, mortgage insurance, lock-in periods, and so on.
Your credit score tells a lender a lot about what type of borrower you are. Ultimately, a higher credit score means that you’ll be able to borrow money at a lower interest rate. So, the higher your credit score, the better the odds of you being able to secure a lower rate.
This is very important because your interest rate will have a direct impact on the overall cost of your mortgage. With a lower rate, you’ll end up paying less in interest over the life of your loan, which can translate into savings of tens of thousands of dollars, or more.
But if your score is low, don’t worry – there’s a lot you can do to bring up that score before you apply for a mortgage, so don’t throw in the towel just yet!
Understanding the minimum credit score required for each loan type can help you identify which mortgage programs you may qualify for and what steps you might need to take before applying.
Conventional loans, which are not government-backed and conform to Fannie Mae and Freddie Mac standards, require a minimum credit score of 620. It is worth noting that a score below 740 may trigger added fees in the conventional lending market, so borrowers with scores in the 620–739 range may face higher costs.
FHA loans have a program minimum of 500 with a 10% down payment, or 580 with a 3.5% down payment. However, many FHA-approved lenders in practice require a score of at least 620, as the FHA cannot compel lenders to accept lower scores. This means that even if you technically meet the FHA program minimum, individual lenders may set stricter standards.
VA loans, available to eligible military veterans and surviving spouses, have no official government-set minimum credit score. However, individual lenders typically set their own benchmarks, and many VA lenders look for a score around 580–620.
USDA loans, which are limited to rural and suburban properties, also have no official government-set minimum credit score. That said, most USDA lenders require at least a 640 FICO score, as it is the threshold for using the USDA’s automated Guaranteed Underwriting System.
For borrowers considering personal loans or jumbo mortgages, the requirements differ as well. Unsecured personal loans typically require a minimum credit score of 550–660 depending on the lender, and scores below 500 are unlikely to qualify. Jumbo mortgage loans generally require higher scores than conventional loans due to the increased risk they present to lenders.
Your credit score is a number between 300 to 850. Generally speaking, anything over 620 is considered to be around the minimum score needed to secure various mortgage types, low lower scores are often accepted in certain situations and certain loan types.
Every financial situation is different, so if you want to find out more about how your credit score will affect your mortgage in your specific circumstance, talk to your mortgage professional.
When you apply for a mortgage, lenders will typically pull your credit report, resulting in what is known as a hard inquiry. Unlike soft inquiries—such as checking your own credit—hard inquiries can have a small negative effect on your credit score. Understanding how hard inquiries work during the mortgage shopping process can help you minimize any unintended impact.
Fortunately, credit scoring models recognize that borrowers often shop around for the best mortgage rate. As a result, multiple mortgage-related hard inquiries made within a short window of time—typically 14 to 45 days depending on the scoring model—are generally counted as a single inquiry. This means you can compare offers from several lenders without significantly damaging your credit score, as long as you do your rate shopping within that condensed timeframe.
It is still a good idea to be mindful of applying for other types of new credit, such as credit cards or auto loans, in the period leading up to your mortgage application. Each separate hard inquiry outside of the mortgage shopping window can incrementally lower your score, which could affect the rates and terms you are offered.
If your credit score is not yet where you need it to be, there are several practical steps you can take to improve it before submitting a mortgage application. Even modest improvements to your score can make a meaningful difference in the loan types available to you and the interest rate you are offered.
One of the most effective strategies is to focus on your payment history. Since payment history is the single largest factor in your credit score, making all of your bill payments on time going forward—and catching up on any past-due accounts—can have a significant positive impact over time.
Reducing your credit utilization is another powerful approach. Paying down existing credit card balances so that you are using less than 30% of your available credit limit can help raise your score relatively quickly. If possible, aim for an even lower utilization rate for the best results.
You should also avoid opening new credit accounts or taking on new debt in the months before you apply for a mortgage. New accounts lower the average age of your credit history and generate hard inquiries, both of which can temporarily reduce your score.
Reviewing your credit reports for errors is another important step. Inaccurate negative information—such as accounts that do not belong to you or incorrectly reported late payments—can be disputed with the credit bureaus and, if corrected, may result in a score improvement.
Finally, keeping older accounts open, even if you are not actively using them, helps maintain a longer credit history and a higher available credit limit, both of which can benefit your score. With patience and consistent financial habits, many borrowers are able to meaningfully improve their credit scores within six to twelve months.
Do you have questions about home loans? Are you ready to apply for a mortgage to buy a home? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington, serving the entire state, as well as Oregon, California, Idaho, and Colorado. We offer many mortgage programs and products with flexible qualification criteria to borrowers across the Pacific Northwest, including our Diamond Homebuyer Program, Cash Buyer Program, and Bridge Loans. Visit our website to get an instant rate quote or to use our online mortgage calculator. Or, reach out to us if you are ready to get pre-approved for a mortgage.
Most lenders require a minimum credit score of around 620 to qualify for a conventional mortgage. Borrowers with scores below 600 may have difficulty obtaining any mortgage, though some loan types and alternative lenders may accept lower scores.
Yes, it is possible. FHA loans and certain other government-backed programs often accept lower credit scores than conventional loans. Some alternative or private lenders also work with borrowers who have lower scores, though terms may be less favorable.
Generally, the higher your credit score, the lower the interest rate a lender will offer you. A lower interest rate reduces the total amount of interest paid over the life of the loan, which can result in savings of tens of thousands of dollars.
FHA loans typically have less stringent credit score requirements than conventional loans, making them an option for borrowers who do not qualify for conventional financing. Specific minimums can vary by lender, so it is best to check with your mortgage professional.
The main factors that affect your credit score are payment history, credit utilization (keeping usage below 30% of available credit), length of credit history, new credit applications, and your mix of credit account types.
Credit utilization is the ratio of your current debt to your total available credit. Keeping this ratio at or below 30% is generally recommended to maintain a healthy credit score.
Opening multiple new credit or loan accounts within a short period can negatively impact your credit score. Each application typically results in a hard inquiry, and having many new accounts can lower your average account age.
A high credit score improves your chances of receiving a lower interest rate, but it does not guarantee the best rate. Other factors such as additional fees, mortgage insurance, loan type, and market conditions also influence the overall cost of a mortgage.
Yes. Paying bills on time, reducing outstanding debt, avoiding new credit applications, and maintaining a healthy mix of credit accounts are all steps that can raise your credit score before you apply for a mortgage.
In many cases, borrowers with lower credit scores may be required to make a larger down payment in order to qualify for certain mortgage types. A larger down payment can reduce the lender’s risk and improve the chances of loan approval.
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