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 your three-digit credit score, called the FICO score, to evaluate credit risk. Each individual actually has three FICO scores, one from each of the three major credit bureaus: Equifax, Experian and TransUnion. The score might vary slightly among the three bureaus, as each one weighs items differently. A lower score correlates with the highest risk of default.


Below are 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, acceptable but relatively lower scores could require a more thorough underwriting. Some lenders reduce the points on a loan for credit scores above a certain level. Others establish a base rate and then charge an increasingly higher rate for those with lower credit scores.

Once you understand your score, you can shop for the lender who will give the best rate for that ranking. Be aware that, to varying degrees, lenders will also take into account other factors including debt-to-income ratio and the size of the down payment.

How Can You Protect Your FICO Score?

Realizing that your FICO score is critical, you should take every action to protect and improve it. First of all, before you apply for a mortgage, purchase copies of your credit report from all three bureaus and check for errors. Errors are common and can affect your credit score adversely. If you see errors, promptly contact the creditor and the bureaus to report the mistakes, as it can often take some time for corrections to show up on your report. Some lenders participate in a rapid scoring service which, for a charge, can speed up the correction process.

You should also narrow down potential mortgage lenders before you let them run a credit report as too many inquiries can lower your score. While paying down your credit cards positively affects your credit score, closing unused accounts can affect your utilization ratio or total debt divided by total available credit. Don’t close your oldest credit card since doing so can make your credit history appear shorter. Your credit history is a factor in determining your FICO score and if you cancel the card you wipe out an important history which can lower your score.

Need insurance for You, Your Family or Your Business?
We can match you to a qualified, local insurance expert!
Further Reading
When homebuyers begin to think about mortgages, invariably they get around to discussing "points", and whether or not to pay them on their mortgage. To make a wise decision, they need to gain an understanding of what points are and how they affect ra...
Just prior to the "Great Recession" of 2007, a study by the Federal Reserve showed that 16% of homeowners prepaid their mortgages annually. However, compared with other types of debt, mortgage debt is one of the most reasonable and affordable types o...
Employee turnover is a substantial expense for most employers. After all, a great deal of time and money goes into recruiting and training employees. There is also a certain degree of productivity loss from the learning curve involved with a new empl...
Your small business expenses and personal expenses should stay separate. However, it's easy to spend business funds for personal expenses, which can affect your personal credit. Understand the business credit mistakes that put your personal credit at...
Your credit scores help determine what you'll pay for an auto loan - and Auto insurance. Studies by state regulators, universities, and independent auditors show that such credit information as how often you've paid a bill more than 60 days late c...