If you want to pay less in interest on your mortgage, take a look at your credit score. This three-digit number tells lenders a lot about how you’ve managed your money in the past. Borrowers who qualify for a low mortgage rate usually have a credit score that lenders consider “good” or better (that means a score of 670 or above). Taking certain steps can help would-be homebuyers improve their credit scores — and, ideally, qualify for a low mortgage rate. 

Applying for a mortgage requires a small mountain of paperwork. There are bank statements, pay stubs, and tax returns to hand over. You’ll need to provide information about your employment status and any other loans you have. You’ll have to hand over a copy of your photo ID and you’ll probably need to sign something saying it’s okay for the lender to check your credit score, too. 

Because lenders collect so much information about a prospective mortgage borrower, a single three-digit number might not seem like it could carry much weight. Actually, though, your credit score is one of the most important factors lenders evaluate. And a high score gives you your best shot at getting a low mortgage rate. 

Understanding your credit score

Your credit score measures how well you’ve managed credit that lenders and other institutions have extended to you in the past. Three major credit bureaus — Equifax, Experian, and TransUnion — keep reports on all borrowers and regularly update that report based on the information they get from other organizations. 

Mortgage lenders primarily use one of two credit measuring metrics from these bureaus: FICO credit scores or VantageScores. 

FICO is more widely used, so we’re focusing on your FICO score here. FICO scores range from 300 to 850. The average score in the U.S. is 717. 

What affects your score

Your current credit score factors in debt you have or have had, including your student loan(s), credit card(s), and car loan(s). Some bills contribute to your credit score, too. If your cell provider or utility company reports bill payments to credit bureaus, those will impact your score. 

If you make your payments on time and the company who received your payment reports to credit bureaus, it helps your score. If you miss a payment, it causes a dip in your score. 

Your payment history makes up the biggest chunk of your credit score, but it’s not the only thing credit bureaus look at. To calculate your score, they also evaluate your:

• Amounts owed: This primarily looks at your credit utilization ratio, or how much of the total money you could be borrowing you’re actually using. A maxed-out credit card, for example, has a credit utilization ratio of 100%, meaning 100% of the available credit is being used. Lower is better here. Aim to keep your credit utilization ratio below 30%. 
• Length of credit history: If you just got your first credit card, financial institutions aren’t going to be very impressed if you’ve managed it well for a few months. A longer credit history shows them you’ve done a solid job of managing your money over time. Pro tip here: don’t close old credit cards, even if you don’t use them any more. The age of that line of credit helps to extend your overall credit history, boosting your score. 
• Types of credit: Financial institutions like to see some diversity here. If you’ve been responsible about managing student debt, a credit card, and a car loan, for example, they’ll feel pretty solid about your financial skills. 
• New credit: Conversely, new credit can ding your score — at least temporarily. This is only a small part of your score (10%). It’s still worth noting, though, that it usually doesn’t make sense to take on any new debt or open any new credit cards before you plan to get a mortgage.

Now that you understand what goes into your credit score, let’s recap a few things you can do to make it as high as possible:

• Pay your bills on time
• Use less of your available credit (i.e., keep credit card balances low)
• Keep old lines of credit open 
• Avoid applying for new loans or credit cards in the lead-up to getting a mortgage

Doing all of these things can help you get a low mortgage rate. So can getting a copy of your credit report and reviewing it for accuracy. If you find anything incorrect on it, dispute it to get it removed. That removal can boost your score. 

Why a good score helps you get a low mortgage rate

When it comes to credit scores, what’s considered “good” actually isn’t subjective. Instead, there are set ranges of credit scores that determine if you have poor, fair, good, very good, or excellent credit. 

Let’s look at those ranges for FICO score:

• Poor: 300–579
• Fair: 580–669
• Good: 670–739
• Very good: 740–799
• Excellent: 800–850

If you can get into the good, very good, or excellent ranges, you have a way to prove to mortgage lenders that you’ve been responsible with past debt. This makes them think you’re more likely to pay back your mortgage. 

Lenders are in the risk management game. When they see a risky borrower, they offset that risk with a higher interest rate. A high credit score helps you look lower-risk, and consequently qualify for a low mortgage rate. 

Credit score requirements for different loan types

With any kind of loan, a higher credit score means getting a better rate. Even if you haven’t tipped up into the 670+ range, though, you can probably qualify for a mortgage. 

The minimum varies from lender to lender, but a lot of institutions require a credit score of at least 620 in order to get a mortgage. 

Some loans backed by government entities let you go even lower. With a loan backed by the Federal Housing Administration (FHA), for example, you can qualify for a loan with a credit score of as low as 500 as long as you put 10% down. And you can get an FHA loan with just 3.5% down if your score is 580 or higher. Some USDA lenders will also accept credit scores starting at 680. 

Seeing how your score impacts your mortgage rate

Right now, you have a general understanding of the credit score-mortgage rate relationship. Higher in one category means lower in the other. A high credit score usually means a low mortgage rate. A low score means you’ll probably pay more in interest on your home loan. 

You don’t have to stop at generalities here. With our rate tables, you can input your credit score to see how that score will impact rate offerings from a variety of lenders.

That means you’ve got two steps to figure out if your credit score qualifies you for a low mortgage rate. First, get your score. You can get yours for free on a weekly basis over at government-backed AnnualCreditReport.com. 

Then, put your credit score into our rate tables. This way, you get empowered with information about what’s available to you based on your unique three-digit credit score. 

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