How Your Credit Score Affects Your Mortgage Rate

Why Credit Scores Matter for Mortgages

When you apply for a mortgage, lenders assess the risk that you'll repay the loan. Your credit score, a three-digit number derived from your credit history, is a key indicator of that risk. A higher credit score signals to lenders that you're more likely to make payments on time, which makes you eligible for lower interest rates.

The Consumer Financial Protection Bureau (CFPB) confirms that "higher scores reflect a better credit history and make you eligible for lower interest rates." This fundamental relationship means that the same mortgage can cost tens of thousands of dollars more over its lifetime if your credit score is significantly lower.

Most mortgage lenders use FICO scores, and they look at scores from all three major credit reporting companies—Equifax, Experian, and TransUnion—typically using the middle score when deciding the rate to offer.

Sources: Consumer Financial Protection Bureau

Credit Score Ranges and Typical Mortgage Eligibility

Lenders use credit score ranges to gauge risk and determine loan eligibility. While different scoring models may have slight variations, FICO scores are commonly grouped into the ranges shown below. These ranges help lenders categorize borrowers, and they align with typical mortgage eligibility standards.

In addition to these ranges, each mortgage type has its own minimum credit score requirements. The table below lists typical minimums for common loan types, based on current industry practices and multiple lender sources.

Sources: Experian, Bankrate, NerdWallet

Impact of Credit Score on Interest Rates

The difference of a few hundred points in your credit score can translate into a significantly different interest rate. Data from the CFPB's "Explore interest rates" tool, based on rate data from April 1, 2025, shows how a borrower with a credit score of 625 might be offered rates in the range of 6.125% to 8.875%, while a borrower with a score of 700 could see offers ranging from 5.875% to 8.125%.

That higher score could save you a substantial amount over the life of a loan. In a CFPB example, the higher score saves up to $264,523 in interest over 30 years on a $400,000 home purchase.

Many lenders also have a floor for credit scores; they typically do not accept borrowers with scores below 620, and the most favorable rates are often reserved for scores in the mid-700s or higher.

Sources: Consumer Financial Protection Bureau, Experian

Improving Your Credit Score Before Applying

If your credit score isn't where it needs to be, there are practical steps you can take to improve it before applying for a mortgage. The CFPB suggests focusing on on-time payments, reducing outstanding debt, and not opening too many new credit accounts in a short period. Your score can decline if you have too many accounts or if you apply for and open many new accounts at once.

It's also important to check your credit report for errors. If you find mistakes, you can dispute them with the credit bureaus. Errors on your credit report can reduce your score inappropriately, which could mean a higher interest rate, so correcting them is a crucial step.

• Pay your bills on time—late payments can seriously hurt your score.
• Reduce revolving balances, such as credit card debt, relative to your credit limits.
• Avoid applying for several new credit accounts in the months before your mortgage application.
• Review your credit report from all three major bureaus—Equifax, Experian, and TransUnion—and dispute any errors.

Sources: Consumer Financial Protection Bureau

Checking Your Credit Report for Errors

Before you apply for a mortgage, order your credit reports from Equifax, Experian, and TransUnion and review them carefully. Errors can range from incorrect personal information to accounts that don't belong to you or missed payments that were actually made on time.

If you spot an error, you can file a dispute with the credit bureau that issued the report. The CFPB provides guidance on how to dispute errors, and you have the right to have accurate information corrected. Correcting errors is not only good for your score but also ensures your mortgage application is based on accurate data.

• Check all three reports—lenders may use reports from any of them.
• Common errors include outdated balances, incorrectly reported late payments, and accounts that aren't yours.
• File disputes online with each bureau, and keep copies of any supporting documents.
• Follow up to ensure the error is corrected; the bureau is required by law to investigate and respond within a reasonable period.

Sources: Consumer Financial Protection Bureau

Credit Requirements for Government-Backed Loans

Government-backed loans—FHA, VA, and USDA—offer more flexible credit requirements, which can make them a path to homeownership for borrowers with lower scores. However, each program has its own rules, and lenders may impose additional "overlay" requirements that are stricter than the official minimums.

FHA loans, insured by the Federal Housing Administration, require a credit score of at least 500 with a 10% down payment, or 580 with a 3.5% down payment. VA loans, for eligible veterans and service members, do not have a set minimum credit score from the Department of Veterans Affairs, but most lenders require a score of at least 620. USDA loans, which help buyers in rural areas, typically require a credit score of 640, though some lenders may accept scores as low as 580.

Keep in mind that these are typical figures; your lender may have its own requirements. Also, even if you meet the minimum for a loan type, a lower score often means a higher interest rate, so you may still benefit from improving your credit before applying.

Sources: Experian, Bankrate, NerdWallet