Your credit score is one of the first numbers that comes into the conversation when you’re preparing to buy a home. It can influence the mortgage programs available to you, the interest rate you’re offered, and how a lender views your overall application.
That doesn’t mean you need perfect credit to buy a house. Different mortgage programs have different guidelines, and your credit score is only one part of the financial equation.
At Penn Street Mortgage, we help homebuyers understand what their credit looks like from a mortgage perspective and how it fits alongside income, debt, savings, and the type of home loan they’re considering. Here’s what you need to know before applying.
What Is a Credit Score?
A credit score is a three-digit number based on information in your credit report. It gives lenders an indication of how you’ve managed borrowed money in the past.
Most credit scores fall between 300 and 850. In general, a higher score can give you access to a wider range of mortgage options and potentially better interest rates. A lower score doesn’t automatically mean homeownership is off the table.
Your credit reports are maintained by the three major credit bureaus: Equifax, Experian, and TransUnion. The information within them can include credit cards, auto loans, student loans, payment history, account balances, and other credit activity.
What Goes Into Your Credit Score?
Credit scoring formulas are complex, but there are a few parts of your financial history that carry particular weight.
Payment History
Your history of paying credit accounts on time is an important part of your score. Late or missed payments can lower it, particularly when they are recent. Building a consistent record of on-time payments can help strengthen your credit profile over time.
Amounts Owed
Lenders also look at how much debt you’re carrying. For revolving accounts such as credit cards, the amount you’ve used compared with your available credit is known as credit utilization.
For example, if you have a $10,000 credit limit and a $2,000 balance, you’re using 20% of that available credit. Paying balances down can improve this part of your credit profile.
Length of Credit History
Older accounts give credit scoring models a longer history to assess. This is one reason closing an old credit card isn’t always helpful, particularly if it has a long payment history and no annual fee.
Credit Mix
Your score can also reflect the different types of credit you’ve managed, such as credit cards and installment loans. You don’t need to open accounts simply to create a broader mix. The goal is responsible management of the credit you already have.
New Credit
Applying for several new credit accounts within a short period can affect your score. That’s worth keeping in mind when you’re getting ready to apply for a mortgage.
Which Credit Score Is Used for a Mortgage?
This is where homebuyers can get confused. The credit score you see through a banking app or free credit monitoring service may not be the exact number a mortgage lender sees.
So, which credit score is used for a mortgage?
Mortgage lenders typically review credit information from Equifax, Experian, and TransUnion and use mortgage-specific scoring models. If three usable scores are available for one borrower, the middle score is generally used for qualifying purposes rather than an average of all three.
For example, if your scores were 682, 704, and 718, the 704 score would generally be the qualifying score.
Applications with more than one borrower work differently because the lender also has to account for each applicant’s credit profile. This is one reason it’s helpful to speak with a mortgage professional rather than relying on the score displayed in a consumer app.
If you’re preparing for your first purchase, our guide on questions to ask a mortgage broker as a first-time homebuyer can help you understand the other information worth discussing before you apply.
What Credit Score Do You Need to Get a Mortgage?
There isn’t one universal answer to what credit score do you need to get a mortgage. The number depends on the loan program, lender guidelines, down payment, and the rest of your financial profile.
Conventional loans commonly use a score around 620 as a starting point, although individual lender guidelines can differ.
FHA financing can offer more flexibility. FHA guidelines may allow borrowers with a score of 580 or higher to qualify for the program’s 3.5% minimum down payment. Scores between 500 and 579 may be eligible under FHA rules with at least 10% down, although lenders can set their own higher credit standards.
VA and USDA loans don’t work from one simple universal minimum score set by the government agency. Lenders may apply their own credit guidelines when reviewing an application.
Jumbo, bank statement, Non-QM, and other programs also have their own criteria. Penn Street offers a broad range of residential mortgage programs, which gives us the ability to look at different financing routes based on your situation rather than assuming one program fits everyone.
How Does Your Credit Score Affect Your Mortgage Rate?
Qualifying for a mortgage is only part of the picture. Your credit can also influence what that mortgage costs.
Lenders price loans based partly on risk. A stronger credit profile may help you qualify for a lower interest rate or more favorable loan pricing. Because a mortgage is usually repaid over many years, a relatively small difference in rate can affect both your monthly payment and the amount of interest paid over time.
This doesn’t mean your score is the only factor determining your rate. Loan type, down payment, property type, market conditions, and other details can all affect pricing.
That’s why looking at your full application is more useful than focusing on one number.
Can You Get a Mortgage With a Lower Credit Score?
Yes, depending on your circumstances and the loan programs available to you.
A lower credit score for mortgage approval can narrow your options, but it doesn’t necessarily close the door. FHA financing may offer greater flexibility for some buyers, and Non-QM programs can provide different qualification routes for borrowers whose financial circumstances don’t fit standard conventional guidelines.
The rest of your application matters too. Your income, existing debts, available funds, down payment, and recent credit history all help build the wider financial picture. If your score isn’t where you’d like it to be, talking with a mortgage professional before assuming you can’t qualify can save you a lot of guesswork.
What Can You Do to Prepare Your Credit Before Applying?
If buying a home is on your radar, giving yourself time to review your credit can be useful. You don’t need to overhaul your entire financial life overnight. A few practical steps can put you in a better position.
Check Your Credit Reports
Review your reports and make sure the information is accurate. Look for accounts you don’t recognize, incorrect balances, or payment information that doesn’t match your records.
If something is wrong, you can dispute inaccurate information with the relevant credit bureau.
Keep Making Payments on Time
Payment history plays a large role in credit scoring. Keeping current accounts paid on time is one of the most useful habits you can maintain before applying for a mortgage.
Setting up automatic payments or reminders can help if you’re managing several accounts.
Pay Attention to Credit Card Balances
If you’re carrying high balances compared with your available limits, paying them down may help your credit profile.
You don’t necessarily need to pay every account to zero before talking with a mortgage professional. It can be helpful to understand which balances are having the biggest effect before deciding where to put extra cash.
Be Careful With New Credit
Buying a house often comes with thoughts of new furniture, appliances, or even a new car. Timing matters.
Opening a new credit card or financing a large purchase before your mortgage closes can change your credit profile and monthly debt obligations. If you’re already in the mortgage process, speak with your mortgage professional before taking on new financing.
Don’t Close Accounts Without a Reason
Paying off a credit card doesn’t mean you need to close it. Closing an account can reduce your available credit and may affect the length of your credit history.
If you’re thinking about closing an account before applying, it can be worth discussing the potential impact first.
What Else Do Mortgage Lenders Look At?
Credit gets a lot of attention, but mortgage approval is based on much more than your score.
Lenders will typically review your income and employment, monthly debt obligations, available funds, down payment, assets, and the property you’re purchasing. Your debt-to-income ratio, often shortened to DTI, compares your monthly debt payments with your gross monthly income.
For example, someone with excellent credit but very high monthly debt may face different options from someone with a lower score and manageable debt.
Your credit score for mortgage approval needs to be viewed alongside the rest of your finances. This is also why two homebuyers with the same credit score can receive different loan options.
When Should You Check Your Credit Before Buying a Home?
Earlier is often useful, particularly if you already know you want to buy within the next several months. Checking your credit gives you time to spot errors, understand your balances, and see whether there are areas you could improve before applying. You also don’t need to wait until everything looks perfect before speaking with a mortgage professional.
Starting the conversation early can help you understand where you stand now and what may be worth working on. You can start your mortgage application online when you’re ready, or meet with our team in downtown West Chester to discuss your options in person.
Put Your Credit Score Into Perspective
Your credit score is one part of your mortgage application, alongside your income, existing debts, down payment, and the type of loan you’re considering.
Penn Street Mortgage works with homebuyers across Pennsylvania, Delaware, Maryland, and Florida to make that process easier to understand. We’ll review your financial picture, explain the mortgage options available to you, and help you understand what your credit means for your next move.
If you’re thinking about buying a home and want to know where you stand, contact Penn Street Mortgage today.