Credit Score
Numerical representation of creditworthiness (300-850 in US); critical for mortgage approval and rates.
Key Takeaways
- FICO score is the most commonly used credit score in the US (range: 300-850)
- Higher credit score = better interest rates and loan terms
- Payment history (35%) and credit utilization (30%) have the biggest impact
- Good credit (700+) qualifies for the best mortgage rates
What is a Credit Score?
A credit score is a three-digit number that lenders use to assess your creditworthiness — in other words, how likely you are to repay borrowed money. Think of it as your "financial report card" that lenders look at when deciding whether to approve your loan application and what interest rate to offer you.
In the United States, the most widely used credit score is the FICO score, which ranges from 300 (poor) to 850 (excellent). Other scoring models like VantageScore also exist, but FICO is the industry standard for mortgage lending.
Credit Score Ranges
- Excellent: 750-850 — Qualifies for the lowest interest rates
- Good: 700-749 — Gets favorable loan terms
- Fair: 650-699 — May qualify but with higher rates
- Poor: 600-649 — Limited options, higher interest rates
- Bad: 300-599 — May have trouble getting approved
Factors That Affect Your Credit Score
Your credit score is calculated based on five main factors, each with a different weight:
Payment History (35%)
This is the most important factor. It tracks whether you've paid your bills on time. Late payments, collections, bankruptcies, and foreclosures all negatively impact your score.
Credit Utilization (30%)
This is the amount of credit you're using compared to your total available credit. To illustrate, if you have a credit card with a $10,000 limit and you've charged $3,000, your utilization rate is 30%. Generally, keeping this below 30% is recommended.
Length of Credit History (15%)
Longer credit history is better. This shows lenders you have a track record of managing credit over time.
Types of Credit (10%)
Having a mix of credit types (credit cards, mortgages, auto loans, student loans) shows you can manage different kinds of debt.
New Credit Inquiries (10%)
Every time you apply for new credit, it creates a "hard inquiry" on your credit report, which can temporarily lower your score. Multiple inquiries in a short period can signal financial distress.
Source: FICO - What is a FICO Score
Why Credit Score Matters for Mortgages
Your credit score has a huge impact on your ability to get a mortgage and how much it will cost you:
- Approval: Most lenders require a minimum credit score (typically 620 for conventional loans, 580 for FHA loans)
- Interest Rate: A higher credit score qualifies you for lower interest rates, which can save thousands of dollars over the life of a mortgage
- Down Payment: Some loan programs require smaller down payments for borrowers with higher credit scores
To illustrate, a borrower with a 760+ credit score might get a 30-year fixed mortgage at 6.5%, while someone with a 620 score might pay 7.5% or more — that difference can add up to tens of thousands of dollars in extra interest over 30 years.
Checking Your Credit Score
You're entitled to one free credit report from each of the three major credit bureaus (Equifax, Experian, TransUnion) every 12 months. You can request them at:
Source: CFPB - Credit Reports and Scores
Estimating Mortgage Rates Based on Credit Score
Want to see how your credit score affects your mortgage payments? Use our mortgage calculator to estimate monthly payments at different credit score levels:
AllMoneyCalc - Mortgage Calculator