Lenders use credit scores to assess the risk of lending money to a borrower. A higher credit score indicates responsible financial behavior, making lenders more likely to approve a mortgage with favorable terms.

Loan Eligibility

Most lenders have a minimum credit score requirement for mortgage approval. For example:

• Conventional Loans typically require a score of 620 or higher.
• FHA Loans may accept scores as low as 500, but borrowers with scores below 580 must make a 10% down payment.
• VA Loans and USDA Loans often have more flexible credit requirements but still favor higher scores.

Interest Rates and Loan Terms

Your credit score directly impacts the interest rate you receive. Borrowers with excellent credit scores (720 and above) qualify for the lowest interest rates, while those with lower scores may face higher rates. Over the life of a mortgage, even a small difference in interest rates can translate into thousands of dollars in savings.

For example, a borrower with a 760 credit score might secure a 30-year fixed mortgage at 5.5%, while someone with a 620 score could receive a 7.5% rate. On a $300,000 loan, the lower score could result in paying over $100,000 more in interest over the loan term.