Your Credit Score and Home Buying: What Lenders Actually Look At

What Your Credit Score Means to Lenders

This is an important real estate decision, and you deserve clarity, confidence, and expert guidance every step of the way.

Your credit score is a three-digit number—typically between 300 and 850—that summarizes your credit history. It tells lenders how reliably you've paid debts in the past, and they use it to predict whether you'll pay a mortgage reliably in the future.

Most mortgage lenders require a credit score of at least 620-640 to approve you for a conventional loan. FHA loans accept scores as low as 580. VA loans sometimes work with borrowers under 600, though it's rare.

Your exact score matters because it determines your interest rate. The difference between a 650 credit score and a 750 credit score can be 0.5-1% in interest rate. On a $300,000 mortgage over 30 years, that's $50-100 per month or $18,000-$36,000 over the life of the loan.

The Five Factors That Make Up Your Score

Credit bureaus (Experian, Equifax, and TransUnion) calculate your credit score using five factors:

• Payment history (35%): Do you pay your bills on time? Late payments (especially 30, 60, or 90+ days late) severely damage your score. One late payment can drop your score 50-100 points.
• Amounts owed (30%): How much debt do you carry relative to your credit limits? If you have a $10,000 credit limit and carry a $9,000 balance, that's 90% utilization and hurts your score. Below 30% utilization is ideal.
• Length of credit history (15%): How long have you been using credit? A longer history is better. This is why closing old credit cards hurts your score—it shortens your average credit age.
• Credit mix (10%): Do you have different types of credit? Mortgages, car loans, credit cards, student loans—having variety shows you can manage different obligations.
• New credit inquiries (10%): Recently applied for credit? Each application causes a hard inquiry that temporarily lowers your score. Multiple inquiries in a short period signal financial desperation.

Which Score Do Lenders Use?

You have three credit scores—one from each bureau (Experian, Equifax, TransUnion). Each might be slightly different because they collect data differently.

Most mortgage lenders pull all three scores and use the middle score for approval decisions. If your scores are 680, 710, and 695, they use 695. This protects the lender from outliers.

The credit score the lender pulls is different from the "credit score" you see in free credit monitoring apps. Those free scores use different formulas and are often 20-50 points higher or lower than the actual mortgage score.

To get your real FICO score (the one lenders use), you can:

• Check myfico.com, which sells your official FICO scores
• Get free scores through some lenders or credit card companies
• Order a credit report from annualcreditreport.com (free, but doesn't include the score)

Improving Your Credit Score Before Buying

If your credit score is below 660, it's worth improving it before applying for a mortgage. Here's how:

Pay down debt: This is the quickest way to improve your score. If you have $5,000 on a $10,000 credit card, paying it down to $2,000 immediately improves your utilization from 50% to 20%. This can raise your score 20-40 points in 1-2 months.

Never miss a payment: From now until you close on your mortgage (and forever, ideally), never miss a payment. A missed payment can drop your score 100+ points. Payment history is 35% of your score for a reason.

Don't apply for new credit: Each new application causes a hard inquiry and temporarily lowers your score by 5-10 points. These stay on your report for 12 months but stop affecting your score after 6 months. Wait until after your mortgage closes to apply for new credit.

Don't close old credit cards: This seems counterintuitive, but closing old accounts shortens your credit history and reduces available credit, both hurting your score. Keep old cards open (unused is fine) and pay down the balance instead.

Dispute errors: Check your credit report (get it free at annualcreditreport.com). If there are errors—accounts you don't recognize, wrong payment histories, duplicate entries—dispute them. Fixing errors can raise your score significantly.

The Timeline for Score Improvement

Credit score improvement takes time. Here's a realistic timeline:

• Paying down debt: Changes appear in 1-2 months. If you pay a credit card from 90% utilization to 20%, expect a 20-50 point increase within 30-60 days.
• Building payment history: After paying on time for 6 months, you'll see improvement (10-20 points). After 12 months of perfect payments, the improvement is more substantial (20-50 points).
• Removing negative items: Late payments stay on your report for 7 years but hurt your score less as they age. A late payment from 3 years ago hurts much less than a late payment from 3 months ago.
• Hard inquiries: These fall off your report after 12 months and stop significantly affecting your score after 6 months.

If your score is 620 and you want to reach 680 before applying, plan for 3-6 months of focused work.

What About Authorized User or Secured Cards?

Some people try to quickly boost their score by becoming an authorized user on someone else's credit account or opening a secured credit card. Do these help?

Authorized user: If you're added to someone else's account with good payment history, it might help your score by 20-50 points. However, lenders increasingly scrutinize this. If they determine you didn't legitimately open the account, it might not count.

Secured credit cards: These require a cash deposit ($200-$2,500) as collateral. You get a credit card and use it like a regular card. These help build credit but take 6-12 months to show meaningful improvement.

Both tactics help, but they're slower than paying down existing debt or improving payment history.

Explaining Past Credit Issues to Lenders

Past credit problems don't automatically disqualify you. Lenders care about the reason and how much time has passed.

If you had a medical debt that went to collections 4 years ago, that's explained and aging. If you had a missed mortgage payment 2 years ago, that's a serious concern but not disqualifying if everything's been perfect since.

Lenders want to see a pattern of improvement. One late payment 5 years ago is forgivable. Three late payments in the past year indicates an ongoing problem.

When you apply for a mortgage, you'll likely have to explain any negative items. Be honest. Prepare a brief statement explaining what happened and how you've addressed it. For example: "Medical emergency in 2019 caused a missed payment. We've had perfect payment history since and have insurance to prevent future issues."

Credit Scores and Interest Rates

Here's what typical interest rates look like based on credit score (these are examples from late 2025; actual rates vary by market and lender):

• Credit score 620-639: 7.5-8.0%
• Credit score 640-659: 6.75-7.25%
• Credit score 660-679: 6.25-6.75%
• Credit score 680-699: 6.0-6.5%
• Credit score 700-759: 5.75-6.25%
• Credit score 760+: 5.5-6.0%

The difference between a 640 score and a 700 score might be 0.5%, which equals $150/month on a $300,000 mortgage. Over 30 years, that's $54,000. Improving your score before applying saves serious money.

The Mortgage Application Timeline and Your Score

When you apply for a mortgage, the lender pulls your credit. The hard inquiry drops your score a few points. Here's what you need to know about timing:

Multiple inquiries within 45 days: If you shop for rates from 3 different lenders within 2 weeks, the hard inquiries count as a single inquiry for scoring purposes. This is by design to encourage rate shopping.

Between pre-approval and closing: Your score might be re-checked. Most lenders pull credit again right before closing. If your score has dropped significantly (more than 10-20 points), they might re-qualify you. This is why you don't apply for new credit between pre-approval and closing.

After closing: Once you close on your mortgage, a new mortgage account appears on your credit report. This initially lowers your score (new accounts hurt), but after 6-12 months, the new mortgage helps your score because it adds to your credit mix and shows you can handle larger debts.

Have questions about your credit score and home buying what lenders actually look at? The team at Thrive.RealEstate is here to help — no obligation, no pressure. We believe everyone deserves expert guidance through life's biggest real estate decisions.