Credit Scores and Mortgage Rates: Your Key to a Better Loan

How Credit Scores Are Calculated

Credit scores are three-digit numbers that lenders use to assess your creditworthiness. Most mortgage lenders use FICO scores, though VantageScore is another common model. Both scores range from 300 to 850, with higher scores indicating a lower risk to lenders.

Your credit score is based on several factors, including your payment history, how much of your available credit you're using (credit utilization), the length of your credit history, new credit applications, and the mix of credit accounts. Payment history and credit utilization carry the most weight in most scoring models.

For mortgage decisions, lenders typically pull your scores from all three major credit bureaus—Equifax, Experian, and TransUnion—and use the middle score. This means discrepancies between bureaus can affect your final rate, so it's important to check all three reports.

• FICO and VantageScore are the main scoring models.
• Scores range from 300 to 850.
• Payment history and credit utilization are major factors.
• Lenders use the middle score from the three major bureaus.

Sources: Consumer Financial Protection Bureau, Experian

Minimum Credit Scores for Different Loan Types

Different mortgage programs have different credit score minimums. While these are typical guidelines, individual lenders may set higher requirements, known as lender overlays. Here's a breakdown of the minimums for common loan types:

• Conventional loans: minimum score typically 620
• FHA loans: minimum score 500 with 10% down, or 580 with 3.5% down
• VA loans: no program minimum, but most lenders require at least 620
• USDA loans: minimum score typically 640
• Jumbo loans: minimum score typically 700

Sources: Experian, AmeriSave Mortgage Corporation, Veterans United Home Loans

How Credit Score Tiers Affect Interest Rates

Your credit score directly influences the mortgage rate you're offered. Borrowers with higher scores typically receive lower rates, which can save thousands of dollars over the life of a loan. For example, the Consumer Financial Protection Bureau's Explore Interest Rates tool shows that a borrower with a credit score of 700 might see rates ranging from 5.875% to 8.125%, while a borrower with a score of 625 might see rates from 6.125% to 8.875%. In that example, the higher score could save up to $264,523 over the life of the loan.

Other data sources show similar patterns. As of May 2026, borrowers with FICO scores of 760–850 saw average mortgage APRs around 6.70%, while those with scores of 620–639 saw averages around 7.36%, according to myFICO data. On a $378,384 loan, this difference could mean about $168 less per month and $60,447 in total interest savings over 30 years.

For VA loans, an illustrative example from 2026 shows a borrower with a 740+ score might get a rate around 6.00%, while someone with a 620–639 score might face 7.50%. On a $400,000 loan, that difference would add over $143,000 in lifetime interest costs.

• Higher credit scores generally lead to lower mortgage rates.
• Rates vary by lender and market; the examples are illustrative.
• Even a small rate difference can mean significant savings over time.

Sources: Consumer Financial Protection Bureau, The Mortgage Reports, VA Loan Network

Steps to Improve Your Credit Score Before Applying

If your credit score isn't where you'd like it to be, there are proven ways to improve it. The Consumer Financial Protection Bureau recommends starting by checking your credit reports from all three major bureaus. Errors can drag down your score, and disputing inaccuracies can help.

Next, focus on making all payments on time. Payment history is a major factor, and consistent on-time payments can raise your score, though it may take six months or more to see significant improvement. Keep credit card balances low—ideally below 30% of your credit limit—and avoid opening several new credit accounts in a short period, as this can lower your score.

Here's a step-by-step checklist to guide you:

1. Get your credit reports from Equifax, Experian, and TransUnion.
2. Review each report for errors and dispute any inaccuracies.
3. Pay all bills on time, every month.
4. Reduce credit card balances to below 30% of your credit limit.
5. Avoid opening new credit accounts in the months before you apply.
6. If possible, allow several months of good credit behavior before starting the mortgage process.

Sources: Consumer Financial Protection Bureau

What to Do If Your Credit Score Is Below Minimums

If your credit score falls below the minimum for the loan type you want, you aren't necessarily locked out of homeownership. FHA loans are available to borrowers with scores as low as 500 with a 10% down payment, which can be a path forward. However, borrowers with very low scores often face higher rates and fewer options.

A key step is to check your credit and correct any errors, as inaccuracies can lower your score. Then, focus on improving your credit through the steps above. While it can take time, the Consumer Financial Protection Bureau notes that consistent on-time payments over six months to a year can make a meaningful difference.

Lenders may also have their own requirements on top of program minimums, so it's worth shopping around and asking about your options. Some lenders specialize in working with borrowers who have lower scores, but rates will likely be higher.

• FHA loans allow scores as low as 500 with 10% down.
• Correcting credit report errors can boost your score.
• Improving your score takes time—plan for six months or more.
• Lender requirements vary, so compare options.

Sources: Consumer Financial Protection Bureau, Experian