Many people don’t recognize how much their credit score affects their mortgage. Not only does it determine whom the lender will approve, but it also affects your monthly mortgage payment.
How Does Mortgage Scoring Really Work?
Most mortgage lenders use a three-digit credit score, commonly the FICO score, to evaluate credit risk. Each person typically has three FICO scores—one from Equifax, Experian and TransUnion—and the score can vary slightly between bureaus because each uses different data and weighting.
Factors that affect FICO scores
- Bankruptcies, judgments and tax liens
- Late payments
- Short credit history
- Too many new accounts
- Too few or too many revolving accounts
- Too many recent credit inquiries
- Multiple credit balances near the maximum limits
Each mortgage company evaluates FICO scores differently. For example, some lenders use a base rate and increase it for lower scores, while others may require more thorough underwriting for certain score ranges; once you understand your score, you can shop for the lender who will give the best rate for that ranking by reviewing resources like Understanding the Impact of Credit Scores on Mortgages.
Keep in mind lenders also consider other factors such as your debt-to-income ratio and the size of your down payment when deciding terms.
How Can You Protect Your FICO Score?
Before you apply for a mortgage, purchase copies of your credit report from all three bureaus and check for errors; mistakes are common and can lower your score. If you find errors, promptly contact the creditor and the bureau to start corrections and see additional guidance like Understanding Credit Scores and Mortgages.
Limit the number of lenders who run a full credit report while you shop, because too many hard inquiries can lower your score. Paying down revolving balances usually helps your score, but closing unused accounts can raise your credit utilization ratio and shorten your credit history, so avoid cancelling your oldest cards.
Corrections may take time to appear on all reports, and some lenders or services offer faster error-resolution options for a fee. Consider regular monitoring of your reports so problems are caught early.
If you need help comparing offers or understanding which lender fits your situation, talk to an agent.
Frequently Asked Questions
What is a FICO score?
A FICO score is a three-digit number lenders use to estimate credit risk based on your credit history and reported account behavior.
Why do I have three different credit scores?
Each major credit bureau maintains its own file and may receive different information from creditors, so scores from Equifax, Experian and TransUnion can differ.
Will checking my credit reports lower my score?
Viewing your own credit reports is a soft inquiry and does not lower your score; only certain hard inquiries from lenders can affect it.
How do I fix an error on my credit report?
Contact the creditor and the credit bureau that shows the error, provide documentation, and follow up until the bureau updates the record.