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How Do Credit Scores Affect Mortgage Rates?

Erica Gellerman4-Minute Read
November 23, 2021

A home is a big, expensive purchase, one that can be made even more expensive by your credit score. Your credit score and mortgage rates are related. In this article, we’ll show you how they’re related and what you can do to improve your credit score and decrease your mortgage rate.

Why Mortgage Rates Are Based On Your Credit Score

A big consideration in your mortgage rate is your credit score, since creditors and lenders use scoring models to determine your creditworthiness when extending a home loan. While a credit score is based on your credit history and is made up of different parts, it ultimately boils down to how reliable you are with paying back your loans.

And that’s what the lender is most worried about: you paying back your loans. If your credit score is lower, you can look like a riskier borrower who may have had trouble in the past repaying debt. If your credit score is higher, you probably look like a less risky borrower to your lender. The interest rate a lender offers is going to reflect how risky a borrower they believe you to be.

How Mortgage Rates Change Based On Credit Scores

Because lenders rely on borrower’s credit scores to determine how likely the borrower is to repay their loan, there is a relationship between credit scores and the mortgage rates that lenders assign to the loan.

The table below illustrates the relationship between credit score, annual percentage rate (APR), and ultimately your total monthly payment using a loan amount of $300,000. The better the credit score, the lower the APR, and the lower the monthly payment:

MyFico Chart

Source: MyFico

What Credit Score Is Needed For The Best Mortgage Rates?

While some mortgage types have lower credit requirements to qualify for a conventional loan from Freddie Mac or Fannie Mae (which we’ll get to in just a bit), you’ll typically need a FICO® credit score of at least 620.

But 620 is the minimum — some lenders may have set a higher minimum credit score for their loans. According to Freddie Mac, it’ll be tough to secure a mortgage with a credit score that’s below 650.

Remember that your credit score is just one piece of the pie. Lenders will also look at other factors to assess your financial picture such as your income, employment history, how long you’ve lived at your current residence, and your cash flow.

Mortgage Types For Lower Credit Scores

If your credit score isn’t stellar, there are some opportunities to secure a mortgage another way.

FHA Loan

First-time home buyers will only need a credit score of 500 to qualify for an FHA loan. That said, 500 is the minimum and it’s more likely you’ll qualify for a mortgage with a score of 580 and above.

If your credit score is at least 580 and above, you’ll need to come up with a down payment of at least 3.5%. If your score is below that, you’re looking at a minimum required down payment of 10%.

It’s also important to note that some sellers will not accept FHA loans. Some sellers believe that FHA loans are riskier than conventional loans. They come with stringent home appraisal requirements than can make sellers nervous.

VA Loans

Qualified veterans and service members have the option of using a VA loan to buy a home. While the Department of Veterans Affairs doesn’t set credit requirements, most lenders will require a minimum credit score of 580.

USDA Loans

While the USDA also doesn’t have a minimum credit requirement, most mortgage lenders will require you to have a minimum credit score of 640.


A Fannie Mae home loan program, HomeReady® allows borrowers to qualify for a mortgage with a minimum credit score of 620. While that is the minimum requirement, a score of 680 or higher will get you a better mortgage rate and term.

How To Maintain Good Credit For Lower Mortgage Rates

While you may be able to qualify for a mortgage with a lower credit score, if you can, it’s in your best interest to try to work to improve your score and get your credit mortgage-ready. It can save you money on your home loan and on other loans you may want to take out in the future.

If you’re working to build a healthy credit score we have tips to help you do that:

Make On-Time Payments On Your Loans

A great way to boost your credit score is to focus on making on-time payment. This includes any accounts that show up on your credit report such as revolving credit (credit cards) and installment credit (auto loans, student loans and personal loans).

If you have problems forgetting, set up automatic reminders. If you’re also having trouble keeping up with your payments, reach out to the creditor or lender to see if they can move the date of your monthly payment cycle so they’re more in sync with your paychecks.

Don’t Hit Your Credit Limit

Getting close to maxing out on your credit card limits will ding your credit. It’s what’s known as credit usage or credit utilization. Expressed as a percentage, credit usage is the balance you’re carrying against the limit of your total cards.

A general rule of thumb is to try to keep your credit usage to 30% or under. So if the limit on all your cards is $100,000, ideally your total balance on all your cards should be no higher than $30,000.

Have A Long Credit History

Your credit score also is affected by how long your credit history is. The longer your history of making on-time payments, the better your score will be. You might want to consider keeping some older credit cards active lest they negatively impact your credit.

Check Your Credit

Errors on your credit score can cost you and could make it more challenging for you to qualify for a loan. Check your credit report on the regular and review it for errors. You can check your credit history for free at

Bottom Line

Buying a home is a big and expensive purchase. There is a strong relationship between your credit score and mortgage rates so it’s important to understand how a credit score affects your ability to qualify for a mortgage and how much you’ll pay to borrow money. A higher credit score can save you a lot of money in the long run.

You can refer to our home buying guide to help you answer other home buying questions.

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Erica Gellerman

Erica Gellerman is a CPA, MBA, personal finance writer, and founder of The Worth Project. Her work has been featured on Forbes, Money, Business Insider, The Everygirl, The Everymom and more.