Understanding Credit Scores
Your credit score is a three-digit number that represents your creditworthiness and affects your ability to get a mortgage.
Three major bureaus track your credit:
Experian - Most commonly used
Equifax - Second most common
TransUnion - Third major bureau
Lenders typically check all three and use the middle score.
Free Credit Reports
You're entitled to one free credit report from each bureau annually at AnnualCreditReport.com. Check your reports regularly for errors that could affect your score.
Sources & References
FICO is the most widely used credit scoring model. FICO scores range from 300-850, with scores above 740 considered excellent.
Official credit score ranges and what they mean for mortgage qualification and interest rates.
You are entitled to one free credit report from each of the three major credit bureaus every 12 months through AnnualCreditReport.com.
Credit Scores for Mortgages
Different mortgage types have different credit score requirements and offer different interest rates.
Minimum Requirements
- • Minimum score: 620
- • Best rates: 740+
- • Down payment: 3-20%
- • PMI if less than 20% down
Rate Impact Example
Score 760: 6.5%
Score 680: 7.0%
Score 620: 7.75%
Difference: $200+/month
Minimum Requirements
- • Minimum score: 580
- • 500-579: 10% down required
- • 580+: 3.5% down payment
- • Mortgage insurance required
Best For
- • First-time homebuyers
- • Lower credit scores
- • Smaller down payments
- • Limited savings
Requirements
- • No official minimum
- • Lenders typically want 620+
- • No down payment required
- • No mortgage insurance
Eligibility
- • Military service members
- • Veterans
- • Surviving spouses
- • Certificate of Eligibility needed
Sources & References
Official FHA loan requirements: minimum credit score of 580 for 3.5% down payment, or 500-579 with 10% down.
Conventional loan minimum credit score of 620, with best rates available for scores of 740 or higher.
VA loans do not have a minimum credit score requirement set by the VA, but lenders typically require 620+.
Factors That Affect Your Score
Understanding what influences your credit score helps you make better financial decisions.
The most important factor. Late payments, collections, and bankruptcies significantly damage your score.
Pro tip: Set up automatic payments to never miss a due date.
The percentage of available credit you're using. Keep this below 30%, ideally below 10%.
Example: $5,000 limit, keep balance under $1,500.
Average age of your credit accounts. Older accounts are better for your score.
Tip: Keep old accounts open, even if you're not using them.
Having different types of credit (cards, loans) and limiting new credit applications both help your score.
Warning: Multiple credit applications in short periods hurt your score.
Sources & References
Official breakdown of FICO score factors: Payment History (35%), Amounts Owed (30%), Length of Credit History (15%), Credit Mix (10%), and New Credit (10%).
Consumer Financial Protection Bureau explanation of credit scores and the factors that affect them.
How to Improve Your Credit Score
Actionable steps to boost your credit score before applying for a mortgage.
Pay down credit card balances to under 30% utilization
Dispute any errors on your credit reports
Request a credit limit increase (don't use the extra credit)
Become an authorized user on someone's good account
Always pay bills on time - set up automatic payments
Keep credit card balances under 10% of limits
Don't close old credit accounts
Limit new credit applications to essential only
Common Mistakes to Avoid
Don't make these costly errors when preparing for a mortgage.
Closing Old Accounts
This reduces your available credit and shortens your credit history, potentially lowering your score by 20-50 points.
Large Purchases on Credit
Maxing out credit cards or taking on new debt before applying for a mortgage can disqualify you or increase your rate.
Multiple Credit Applications
Each hard inquiry can drop your score 5-10 points. Shop for mortgages within a 14-45 day window to count as one inquiry.
Ignoring Credit Report Errors
Up to 25% of credit reports contain errors. Dispute inaccuracies immediately as they can cost you thousands in higher interest.
Timeline for Credit Score Improvement
How long it typically takes to see improvements based on your actions.
Paying Down Balances
Impact shows on your next statement. Can boost score 10-50 points immediately.
Disputing Errors
Bureaus have 30 days to investigate. Removing errors can improve score 20-100+ points.
On-Time Payments
Consistent payment history builds trust. Score improves gradually, 5-10 points per month.
Major Improvements
Recovering from late payments or collections. Score can improve 50-100+ points with perfect payment history.
Continue Your Learning Journey
Explore related topics to prepare for your mortgage application.
Educational Purpose Only: This guide is for educational purposes only and does not constitute financial advice. Credit scores and lending requirements vary by lender and location. Consult with qualified professionals for personalized guidance.