How Credit Scores Affect Mortgage Interest Rates


Your credit scores and credit history play a major role in your ability to buy a home, finance a new car, or make other big purchases, but many times they’re forgotten about until it’s too late. As a mortgage broker, we’ve seen some great individuals miss out on their dream home because of unexpected credit issues. Becoming more familiar with how your credit scores affect home loans and interest rates will help you avoid pitfalls along the way to buying your new home.

What are Credit Scores?

Credit scores are a three digit number that range from 300 to 850. The higher your scores are, the better. Technically speaking credit scores are a representation of the likelihood that you’ll become delinquent on your credit obligations in the near future, based on the way you’ve handled debts in the past. In simpler terms, your credit scores tell others, like a mortgage broker, the probability that you’ll make payments on the money they lend you, based on how you’ve handled past debts. You can increase your scores, and the likelihood that others will lend you money, by making full, on time payments for the accounts you’ve already got open.

What Makes up My Credit Scores?

Your credit scores are calculated using multiple pieces of information in your credit history. Those pieces of information are grouped into the five categories shown below. The percentage next to each category shows its weight, or importance, in determining your credit scores.

What makes a credit score? Here's how your credit scores are calculated | Logan UT Mortgage Company

1. Payment History (35%): Your payment history includes information such as delinquencies, public records, and whether you’ve made payments on time or not.

2. Credit Utilization (30%): Credit utilization isn’t just how much you owe on all of your credit lines. It’s a percentage of how much credit you owe compared to the total amount of credit available to you. For example, if your credit limits total $10,000 and you’ve used $5,500, then your credit utilization is 55%.

3. Length of Credit History (15%): Length of credit history looks at how long your accounts have been open and the last time activity was reported.

4. New Credit (10%): This includes any recent inquiries into your credit and the number of accounts you’ve opened recently.

5. Types of Credit or Credit Mix (10%): There are different kinds of credit accounts like installment and revolving accounts. Credit mix looks at which types of accounts you currently have.

What Credit Scores do I Need to Get a Home Loan?

There are a lot of different mortgage programs available and each one has different credit score requirements. The table below shows the minimum credit scores allowed for the 4 most popular home loan programs; but keep in mind that some mortgage lenders will enforce higher credit requirements than what’s shown in this table.

Minimum credit scores to get a mortgage | Home loans in Logan UT

As you can see, it’s definitely possible to qualify for a mortgage with low credit scores, but it can come with a little extra work. When your credit scores are below 580, you may have to bring additional documentation, attend educational courses, or provide a larger down payment as part of the home loan process. With that being said, you still have options! At Wasatch Mortgage we’ve helped numerous customers with bad credit scores qualify for a mortgage.