When looking to apply for a mortgage, your credit score plays a big part. Your credit score is calculated using five different factors, all with their own weights. Each of these factors is analyzed and used in the calculation of your credit score. The five factors are:

  • Payment History – This factor is based on the payments you are responsible for making and how consistently you pay them. This is 35% of your overall score.
  • Current Debt – Concerning your credit score, the amount of your existing debt is factored in. It includes the number of accounts you have, as well as how much of your credit lines are being utilized. This accounts for 30% of your score.
  • Length of Credit History – How long you’ve had lines of credit and the length of time you’ve been making payments make a difference. Your credit history equals 15% of your score.
  • Types of Accounts – Having a diverse portfolio of accounts, including credit cards and loans, plays a part in your credit score. This is 10% of your credit score.
  • Recent Activity – If there has been a lot of credit-related activity on your account, it can impact your score negatively. Longer running accounts typically make for a better score. This is the final 10% of your score.

Pie chart of credit score factors

Your credit score is used when calculating a mortgage, taking into account all of these factors to determine at what rate a lender will loan you money. 

Credit score directly affects mortgage rate because it helps lenders determine if someone will repay their debt in full and on time. The higher the credit score, the more confident they can be in the prospective borrower. In other words, the higher your credit score, the better the rate you’ll receive.

What Is The Average Mortgage Rate For Your Credit Score?

Credit Score Interest Rate Monthly Payment Total Interest Paid
760-850 2.577% $798 $87,378
700-759 2.799% $822 $95,806
680-699 2.976% $841 $102,624
660-679 3.19% $864 $110,982
640-659 3.62% $912 $128,154
620-639 4.166% $974 $150,665

Looking at the above table, you can get an idea of what mortgage rate you’re likely to receive based on your credit score. The table is based on the myfico.com loan savings calculator and demonstrates a loan value of $200,000 at a fixed rate for 30 years.

As you can see, the higher your credit score, the lower the interest you’ll be paying, making an incredible difference in the total amount you’ll pay over time. Credit scores have ranges that determine if they’re bad, fair, good, or excellent. The ranges for different levels can be seen below.

  • Bad – 300 to 629
  • Fair – 630 to 689
  • Good – 690 to 719
  • Excellent – 720 to 850

Generally, the higher your credit score, the lower your payments will be.

Depending on your credit level, you may want to consider bumping up your score before applying for a mortgage loan. It can take anywhere from 3 months to raise your credit score for reasons like maxing an account or closing one, all the way up to 6 years for issues like bankruptcy.

What Is A Good Credit Score For Buying A House?

The minimum credit score for obtaining a conventional mortgage loan is 620, while a VA loan or a loan insured by the Federal Housing Administration is 580. These credit scores are the lowest credit scores accepted for mortgage loans and will result in the highest interest rates and possibly higher down payments. 

According to CNBC, the recommended minimum in 2021 is 760, which will result in getting the best mortgage rates on a loan. While you may apply for a mortgage loan with your current score, you might want to consider raising your score before applying if it isn’t at least 760.

Tips To Boost Your Credit Score To Qualify For A Better Mortgage Rate

If you need to boost your credit score before applying for a mortgage so that you’re sure to get the best rate, check out these five ways to get on the best track.

  1. Review your credit reports – You can review your credit reports once a year with no penalty. By doing so, you’ll be able to see what is negatively impacting your score and handle it.
  2. Dispute mistakes – If you find mistakes on your credit report while reviewing it, make sure to dispute them. By disputing them, you can have negative remarks removed, increasing your score quickly.
  3. Reduce your debt – Make large payments on your outstanding debt, and reduce your credit utilization to boost your score before applying for a mortgage.
  4. Get a higher credit limit – In a way that almost feels like gaming the system, if you have a good history with your credit card companies, ask to increase your limits. This will actually reduce your credit utilization ratio and thus improve your score.
  5. Take care of your older accounts – By paying attention to your older accounts, especially the ones with delinquencies, you can increase your credit score. By handling these delinquencies, you can remove negative remarks from your credit report and increase your score.

What Credit Scores Are Required For A Digital Mortgage?

Digital mortgages are growing in popularity as they eliminate the need for paperwork and manual processes. Simply put, they’re all about convenience. The benefits of a digital mortgage are faster approval and lower fees compared to the traditional method.

To take advantage of this convenience and the other benefits that come with a digital mortgage, you’ll need a higher minimum credit score than you would for a conventional mortgage. Ratecloud requires a minimum credit score of 680 when applying for a digital mortgage.

Learn More About Ratecloud’s Mortgage Options

If you’re looking to apply for a mortgage and consider the digital route, remember how your credit score will affect your mortgage rates. If you want to be taken care of, and have the minimum score of 680 that’s required, be sure to consider Ratecloud. It’s as easy as logging onto a computer and clicking “Apply”. Get Started on your digital mortgage application with Ratecloud today!