When you apply for a mortgage, your credit score is one of the first things a lender looks at. Income, savings, debt and the property matter too, but the score shapes both whether you qualify and how your loan is priced.
What goes into a credit score
Scoring models differ, but the commonly cited FICO factors are roughly:
- Payment history: about 35%
- Amounts owed (credit utilization): about 30%
- Length of credit history: about 15%
- Credit mix: about 10%
- New credit: about 10%
How it affects your mortgage
- Approval: Loan programs have minimum score guidelines. Conventional loans often look for around 620 or higher, and FHA loans generally require a higher score to qualify for the lowest down payment. Lenders may set stricter requirements of their own.
- Pricing: A stronger score usually means more favorable pricing. Over a long loan, a small difference in rate can add up to a significant amount.
- Mortgage insurance: The cost of private mortgage insurance often depends on your score and down payment.
- Options: A stronger profile can open up more programs and more lenders.
Rough credit score ranges
Lenders define their own ranges. A common general guide is:
- Excellent: about 740 and above
- Good: about 700 to 739
- Fair: about 640 to 699
- Lower scores: more limited options, but there may still be programs worth asking about
An illustration
The numbers below are for illustration only. They are not an offer, a quote or a promise of any rate or payment.
Two borrowers with different scores could be quoted different rates on the same loan amount. On a $300,000 loan over 30 years, a 1-point difference in rate means a payment that is about $200 higher each month, and roughly $71,000 more over the life of the loan.
What you can do now
- Check your credit reports for errors
- Pay all bills on time
- Keep credit card balances low
- Avoid new credit applications before you apply
- Keep older accounts open
If your score is not where you would like it to be, ask a lender what to work on and how long it could take. There may be more options than you expect.
Every borrower is different. If you would like to talk through your own situation, the MonaLending team is happy to help.
