Your credit score is the single biggest factor lenders use to decide whether to approve you for a mortgage and what interest rate you'll pay

Lenders pull your credit score to measure how reliably you've paid debts in the past. A higher score signals lower risk to them, so they offer you a lower interest rate. A lower score means they charge you more — sometimes significantly more — or deny you altogether. The difference between a 620 score and a 760 score can mean paying tens of thousands of dollars more over the life of a loan, or being unable to borrow at all.

Your score doesn't determine approval or rate by itself. Lenders also look at your income, employment history, down payment size, and the property itself. But credit score is the lever that moves fastest and costs you the most if it's low. Understanding how it works helps you know what to expect before you apply, and what might change your approval odds.

Key Takeaways

  • Credit scores below 620 are rejected by most conventional lenders, though some government-backed loans accept scores as low as 500.
  • Each 20-point increase in your score typically lowers your interest rate by roughly 0.25%, which saves thousands of dollars over 30 years.
  • Lenders use your credit report to calculate your score, so errors on that report can cost you money even if your actual payment history is good.
  • Your score can improve in months if you pay down high credit card balances, because the amount you owe relative to your credit limit matters more than payment history alone.
  • Different loan types have different score minimums: FHA loans go lower than conventional, VA loans are more flexible, and USDA loans vary by lender.

How lenders use your credit score to set your rate

When you apply for a mortgage, the lender orders your credit report from one or more of the three major bureaus — Equifax, Experian, and TransUnion. They calculate a score from that report, usually a FICO score, which ranges from 300 to 850. The score reflects how you've managed credit over time: whether you paid on time, how much you owe, how long you've had accounts open, and whether you've had collections or bankruptcies.

Lenders have rate sheets that tie scores directly to interest rates. A borrower with a 750 score might get 6.5% on a 30-year mortgage, while a borrower with a 650 score might get 7.2% on the same loan amount and property. That 0.7% difference means paying roughly $150 more per month on a $400,000 loan — or $54,000 more over 30 years. The worse your score, the steeper the penalty.

The rate sheet changes daily based on market conditions, so the exact numbers shift. But the relationship is consistent: higher score, lower rate. This is why even a small improvement in your score before you apply can save real money.

Minimum credit scores for different loan types

Conventional loans — mortgages not backed by the government — typically require a score of at least 620. Some lenders will go as low as 580 with a larger down payment, but most won't. Scores below 620 are considered subprime, and conventional lenders treat them as too risky.

FHA loans, backed by the Federal Housing Administration, accept scores as low as 500 if you put down 10%, or 580 if you put down 3.5%. FHA is designed for borrowers with lower scores or smaller down payments. The trade-off is that you pay mortgage insurance, which adds to your monthly payment.

VA loans, available to military members and veterans, have no official minimum score. In practice, most VA lenders require 620, but some will work with borrowers in the 580 to 620 range. VA loans also don't require a down payment and have no mortgage insurance, which makes them valuable even if your score is lower.

USDA loans, for rural properties, typically require 620 or higher, though some lenders go lower. Requirements vary by lender, so calling around matters more with USDA than with other programs.

What happens to your rate if your score is below 700

Scores between 620 and 680 are considered fair credit. You'll be approved for most loans, but you'll pay a noticeably higher rate. Lenders see this range as higher risk, so they price that risk into your rate. The exact penalty depends on the lender and the market, but expect to pay 0.5% to 1.5% more than a borrower with a 750 score.

Scores between 680 and 720 are good credit. You're in the range where most lenders compete for your business, and rates are much closer to the best available. A score of 700 is often a threshold where lenders stop charging risk premiums.

Scores above 740 get the best rates available. The difference between 740 and 800 is usually small — maybe 0.1% — so there's less incentive to push higher once you're in this range. But getting from 680 to 740 can save you 0.5% or more.

How to read your credit report and spot errors

Your credit score comes from your credit report, which is a record of every account you have or had, every payment you made or missed, and any collections or judgments. Errors on that report — a missed payment you actually made, an account that isn't yours, a balance that's wrong — will lower your score and cost you money.

You can get a free copy of your credit report from each bureau once per year at annualcreditreport.com, the official government site. Check all three reports, because they don't always match. Look for accounts you don't recognize, balances that seem wrong, and payment statuses that are incorrect.

If you find an error, contact the bureau in writing and describe the problem. Include a copy of documentation that proves the error — a bank statement showing you paid on time, for example. The bureau has 30 days to investigate and respond. If the error is confirmed, they remove it from your report, and your score may improve within days.

The fastest ways to improve your score before applying

If your score is below 700 and you're not applying for a mortgage immediately, you can improve it. The fastest lever is paying down credit card balances. Your credit utilization — the amount you owe divided by your credit limit — makes up about 30% of your FICO score. If you have a $10,000 limit and owe $8,000, you're at 80% utilization. Paying that down to $2,000 (20% utilization) can raise your score by 50 to 100 points in one or two billing cycles.

Payment history is 35% of your score, but it moves slowly. A single missed payment can drop your score 100 points, but it takes months of on-time payments to recover. Don't expect payment history to improve your score quickly unless you've had recent missed payments that are now aging off your report.

Hard inquiries — the checks lenders do when you apply for credit — lower your score by a few points each. Avoid applying for new credit cards or loans in the months before you apply for a mortgage. Multiple inquiries in a short time can compound the damage.

Closing old credit card accounts hurts your score because it lowers your total available credit and removes payment history. Keep old accounts open even if you're not using them.

What to do if your score is too low to get approved

If your score is below 620 and you need a mortgage now, your options are limited but real. An FHA loan is usually the fastest path if you can put down 3.5% or more. FHA accepts lower scores and moves quickly, though you'll pay mortgage insurance.

A co-signer — someone with a higher score who agrees to be responsible for the loan if you don't pay — can help you get approved or get a better rate. The co-signer's score and income both matter, so this only works if they have strong credit.

Waiting three to six months while you pay down balances and let negative marks age is often the smartest move. A 50-point improvement in your score can mean the difference between 7.5% and 7.0%, saving you thousands. The cost of waiting is usually less than the cost of borrowing at a high rate for 30 years.

How lenders verify your score and what they see

When you apply, the lender orders a tri-merge credit report, which pulls your score from all three bureaus and shows all three scores. Most lenders use the middle score of the three — if your scores are 680, 710, and 690, they use 690. Some use the lowest score, which is more conservative.

The lender also sees your full credit report, not just the score. They look at the age of your oldest account, the mix of credit types you have (credit cards, car loans, mortgages), recent inquiries, and any negative marks. A score of 700 with a recent collection looks riskier to them than a score of 680 with clean payment history, even though the score is higher.

Lenders also verify that the information on your application matches your credit report. If you list an income or employment history that doesn't match what they see, they'll ask for documentation or deny you. Honesty on the application matters as much as your score.

Frequently Asked Questions

Can I get a mortgage with a 600 credit score?

Yes, with an FHA loan if you put down at least 10%. Conventional lenders won't touch a 600 score. VA loans may work if you're military, but most VA lenders require 620 or higher. FHA is your most realistic option, though you'll pay mortgage insurance on top of your rate.

How much does a 50-point improvement in my credit score actually save me?

Roughly 0.125% on your interest rate, which is about $25 per month on a $400,000 loan. Over 30 years, that's $9,000. The exact savings depend on the lender, the market, and your loan amount, but the relationship is consistent: higher score, lower rate.

Will paying off collections improve my credit score?

Yes, but not as much as you might expect. A paid collection still shows on your report and still hurts your score, though less than an unpaid one. The damage fades over time — after seven years, it falls off your report entirely. Paying it is still worth doing because lenders see it as a sign you're taking responsibility.

Do I need to check my credit score before applying for a mortgage?

Yes. Knowing your score tells you which loan types you can realistically get and what rate to expect. It also gives you time to fix errors or pay down balances if your score is lower than you thought. The lender will pull your score anyway, so checking first just gives you a head start.

Can I improve my credit score in one month before applying?

Paying down credit card balances can help in one month, but major improvements take longer. A single large payment can lower your utilization and raise your score by 20 to 50 points within a billing cycle. Payment history and other factors move more slowly, so don't expect a 100-point jump in 30 days.