When it comes to buying a home or applying for a mortgage in the United States, one of the most important numbers that lenders consider is your credit score. It not only determines whether you’ll get approved but also how much you’ll pay over the life of the loan.
In this blog, we’ll explain how your credit score directly affects mortgage risk from a lender’s perspective—and what that means for you as a borrower.
A credit score is a three-digit number ranging from 300 to 850 that reflects your creditworthiness—your ability and likelihood to repay debt.
The higher the score, the lower the risk you pose to a lender. In the U.S., credit scores are calculated using several key factors:
| Factor | Weight |
|---|---|
| Payment history | 35% |
| Amounts owed (credit utilization) | 30% |
| Length of credit history | 15% |
| New credit inquiries | 10% |
| Types of credit used | 10% |
- Borrowers with scores above 700 are more likely to get approved quickly.
- Scores below 620 are considered subprime, and these borrowers may be rejected or offered loans with stricter terms.
Lower credit scores lead to higher interest rates. This is how lenders compensate for the greater risk of non-payment.
💡 Example:
A borrower with a 780 score might qualify for a 6.25% rate,
while a 620 score borrower could receive a rate as high as 8.5% for the same loan amount.
- Conventional loans typically require a score of 620+
- FHA loans may accept scores as low as 580
- VA and USDA loans are more flexible but still assess credit risk
Borrowers with low credit scores often need to pay PMI, especially if their loan-to-value (LTV) ratio is above 80%. This adds to monthly costs and protects the lender if the borrower defaults.
Here’s how credit score influences monthly payments:
| Credit Score | Interest Rate | Monthly Payment (30-Year, $300K Loan) | Total Interest Paid |
|---|---|---|---|
| 780 | 6.25% | $1,847 | ~$365,000 |
| 620 | 8.5% | $2,301 | ~$528,000 |
To reduce your perceived mortgage risk and qualify for better terms, take these steps:
- Pay all bills on time — even one missed payment can lower your score.
- Reduce your credit card balances — aim for <30% utilization.
- Avoid new credit inquiries in the months leading up to your mortgage application.
- Check your credit report for errors and dispute any inaccuracies.
- Maintain older accounts to lengthen your credit history.