What is a credit score and how is it calculated?
A credit score is a number that represents how likely you are to be able to pay back a loan on time. Scores range from 300-850, with higher scores representing better repayment likelihood.
Your score is based on your borrowing and repayment behavior across credit cards, loans, and other accounts.
While scoring models can vary, most credit scores are generally influenced by five categories:
- Payment history: Whether bills have been paid on time
- Amount owed: Amount of debt compared to credit limits
- Length of credit history: How long accounts have been open
- Credit mix: The variety of credit types, such as credit cards, auto loans, or student loans
- New credit activity: Recent applications or newly opened accounts
Each factor may carry a different weight depending on the scoring model, and credit scores can change as new information is reported.
How do mortgage lenders use your credit score?
Mortgage lenders typically use credit scores as one tool to help assess the risk of loaning a borrower money for a home. A credit score may help indicate how a borrower has handled debt in the past, which can inform lending decisions.
In the mortgage process, a credit score may influence:
- Whether an applicant meets a lender’s eligibility guidelines
- The types of loan programs the borrower may qualify for
- The interest rate or loan terms a borrower may be offered
Lenders generally review credit scores alongside other financial details, including income, employment history, existing debt, and savings. A credit score alone does not determine whether a borrower will qualify for a mortgage.
What is the minimum credit score you need to buy a home?
There is no single minimum credit score that applies to all mortgage loans. Credit score requirements can vary depending on the loan program and lender policies.
For example, some government-backed mortgage programs may allow lower credit scores than conventional loans, while other programs may have higher minimum requirements. Individual lenders may also establish guidelines that exceed program minimums.
Because requirements can differ, borrowers should speak with a loan originator to better understand what mortgage options could be available based on their financial profile.
What are some ways to improve your credit score?
Improving a credit score generally involves building consistent credit habits over time. Actions that may help support healthier credit include:
- Paying bills on or before their due dates
- Keeping credit card balances low relative to credit limits
- Reviewing credit reports periodically for errors or inaccuracies
- Limiting new credit applications unless necessary
Changes to a credit score typically occur gradually, and outcomes can vary based on individual circumstances.
What to avoid that can lower your credit score
Certain financial behaviors may negatively affect a credit score, particularly if they occur repeatedly or over an extended period. These may include:
- Missing or making late payments
- Carrying high balances on revolving credit accounts
- Opening multiple new credit accounts within a short timeframe
- Defaulting on loans or allowing accounts to go to collections
Being aware of how everyday financial decisions could impact credit can help borrowers make more informed choices as they prepare for homeownership.
Thinking about buying a home?
No matter where you are in your homebuying journey, a good first step is to become a PremierBuyer™.1 This offers a better idea of what you can afford and can help you look more attractive to sellers by proving you are both serious about a prospective purchase and likely to be able to financially follow through. Wintrust Mortgage offers an online process to become a PremierBuyer™ that’s fast, easy, and secure.
