Understanding Credit Scores: What Homebuyers Need to Know
Credit scores homebuyers need to understand can make or break a mortgage application. Whether you are purchasing your first home or investing in rental property, your credit score directly affects the interest rate you receive, the loan programs available to you, and how much you pay over the life of your mortgage. At Integrity Home Lending, we help borrowers across 13 states navigate the credit landscape and secure the best possible financing.
What Are Credit Scores Homebuyers Should Know About?
Credit scores homebuyers encounter during the mortgage process are three-digit numbers ranging from 300 to 850 that represent your creditworthiness. Lenders use these scores to evaluate the risk of lending you money. The higher your score, the lower the perceived risk, which translates to better interest rates and more favorable loan terms. The most commonly used credit scoring model in mortgage lending is the FICO score. When you apply for a mortgage, lenders typically pull scores from all three major credit bureaus: Equifax, Experian, and TransUnion. They then use the middle score to qualify you for a loan. If you are applying with a co-borrower, lenders use the lower of the two middle scores.
Credit Score Ranges and What They Mean for Credit Scores Homebuyers
Understanding where your score falls helps you set realistic expectations for your mortgage options:
Excellent Credit (740-850)
Borrowers in this range qualify for the best interest rates available. You will have access to every loan program and may receive reduced fees or waived mortgage insurance requirements on certain products. An excellent score can save you tens of thousands of dollars over a 30-year mortgage.
Good Credit (670-739)
This range still qualifies you for competitive rates and most loan programs. You may pay slightly higher rates than excellent-credit borrowers, but you will still have strong negotiating power and access to conventional, FHA, VA, and USDA loans.
Fair Credit (580-669)
With fair credit, your options narrow somewhat, but homeownership is still achievable. FHA loans are particularly valuable for borrowers in this range, requiring as little as 3.5 percent down with a minimum score of 580.
Poor Credit (300-579)
Scores below 580 make qualifying for a mortgage more difficult, but not impossible. Some FHA lenders work with scores as low as 500 with a 10 percent down payment. If your score is in this range, it may be worth taking 6 to 12 months to improve it before applying.
Minimum Credit Score Requirements by Loan Type
Different loan programs have different minimum requirements. Here is what credit scores homebuyers need for each major program: Conventional Loans: Most lenders require a minimum score of 620, though some allow 600. A score of 740 or higher earns the best pricing adjustments. Conventional loans are ideal for borrowers with strong credit who want to avoid FHA mortgage insurance. Learn more about how FHA and conventional loans compare. FHA Loans: The Federal Housing Administration insures loans with scores as low as 500. With a score of 580 or higher, you can put down as little as 3.5 percent. Between 500 and 579, a 10 percent down payment is required. Check our guide on down payment requirements by loan program. VA Loans: The Department of Veterans Affairs does not set a minimum credit score, but most VA-approved lenders require at least 580 to 620. VA loans offer zero down payment and no monthly mortgage insurance, making them one of the best options for eligible veterans and active-duty service members. USDA Loans: The U.S. Department of Agriculture generally requires a minimum score of 640 for automated underwriting approval. Manual underwriting may be available for lower scores on a case-by-case basis. DSCR Loans: For real estate investors, DSCR loans in Georgia and other states focus primarily on the property’s rental income rather than the borrower’s personal income. However, most DSCR lenders still require a minimum credit score of 620 to 680.
How Credit Scores Homebuyers Have Affect Mortgage Rates
The relationship between your credit score and your interest rate is significant. Even a small difference in rate can cost or save you thousands over the life of your loan. For example, on a $300,000 30-year fixed mortgage, the difference between a 6.5 percent rate and a 7.0 percent rate is approximately $100 per month, or $36,000 over the life of the loan. Lenders use a pricing matrix called Loan-Level Price Adjustments (LLPAs) that adds or subtracts basis points from your rate based on your credit score and down payment combination. A borrower with a 760 score putting 20 percent down receives the best pricing, while a borrower with a 640 score putting 5 percent down pays a significant premium.
How to Check and Monitor Your Credit Score
Before starting your home search, check your credit scores from all three bureaus. You are entitled to free annual credit reports from AnnualCreditReport.com, the only federally authorized source. Many banks and credit card companies also provide free FICO score access through their apps and websites. Review each report carefully for errors. Studies have found that approximately one in five consumers has an error on at least one credit report. Disputing and correcting errors can sometimes boost your score significantly in just 30 to 60 days.
Proven Strategies to Improve Credit Scores Homebuyers Need
If your score needs improvement before applying for a mortgage, here are the most effective strategies ranked by impact:
Pay Down Credit Card Balances
Credit utilization, the percentage of available credit you are using, accounts for roughly 30 percent of your FICO score. Reducing your balances below 30 percent of your credit limits can produce a noticeable score increase within one to two billing cycles. For the biggest boost, aim for below 10 percent utilization.
Make All Payments on Time
Payment history is the single largest factor in your credit score at 35 percent. Even one missed payment can drop your score by 50 to 100 points. Set up automatic payments for at least the minimum due on every account to protect your payment history.
Avoid Opening New Accounts
Each new credit application generates a hard inquiry that can temporarily lower your score by 5 to 10 points. In the months leading up to your mortgage application, avoid opening new credit cards, auto loans, or other credit accounts.
Keep Old Accounts Open
The length of your credit history accounts for 15 percent of your score. Closing old credit card accounts reduces your average account age and your total available credit, both of which can lower your score. Keep older accounts open and use them occasionally to maintain activity.
Become an Authorized User
If a family member has a credit card with a long history of on-time payments and low utilization, ask to be added as an authorized user. Their positive payment history may be added to your credit report, potentially boosting your score.
Common Credit Scores Homebuyers Mistakes to Avoid
Many prospective buyers unknowingly damage their credit scores homebuyers need right before applying for a mortgage. Avoid these common pitfalls: Do not finance furniture or appliances for your new home before closing. Large purchases increase your debt-to-income ratio and can lower your credit score. Wait until after your mortgage closes to make these purchases. Do not co-sign for anyone else’s loan or credit application. Co-signing makes you equally responsible for the debt, which affects both your credit utilization and debt-to-income ratio. Do not close existing credit accounts thinking it will help your score. As mentioned above, closing accounts typically hurts rather than helps your credit profile.
How Long Does It Take to Improve Credit Scores Homebuyers Need?
The timeline for credit improvement depends on your specific situation. Paying down high credit card balances can show results in 30 to 60 days. Correcting reporting errors may take 30 to 45 days through the dispute process. Recovering from a late payment typically takes 6 to 12 months of consistent on-time payments. For more significant issues like bankruptcy or foreclosure, the waiting period before you can qualify for a new mortgage ranges from 2 to 7 years depending on the loan program. Our team at Integrity Home Lending can help you create a personalized timeline and action plan. Use our home affordability calculator to see where you stand.
Get Pre-Qualified with Integrity Home Lending
Understanding credit scores homebuyers need is the first step toward homeownership. Whether your score is already in great shape or needs some work, the mortgage experts at Integrity Home Lending are here to help. We serve borrowers across Alabama, Alaska, Colorado, Florida, Georgia, Maryland, Mississippi, New Jersey, North Carolina, Pennsylvania, South Carolina, Tennessee, and Virginia. Get pre-qualified today to find out exactly what loan programs and rates you qualify for. Our process is fast, straightforward, and comes with personalized guidance from experienced loan officers who understand the credit landscape. You can also contact our team directly with any questions about your credit situation.
