Your credit score is one of the most important factors in buying a home — it determines whether you qualify, what interest rate you get, and how much the loan costs over time. Understanding what credit score you need and how different loan programs work can save you tens of thousands of dollars over the life of your mortgage. This guide breaks down minimum requirements by loan type, shows exactly how your score affects your rate and monthly payment, and provides actionable strategies to improve your score before applying.
Minimum Credit Score by Loan Type
Different mortgage types have different credit score requirements. Government-backed loans (FHA, VA, USDA) generally have more flexible credit requirements than conventional loans, making homeownership accessible to more borrowers.
| Loan Type | Minimum Score | Down Payment | Best For |
|---|---|---|---|
| FHA | 500 (10% down) / 580 (3.5% down) | 3.5-10% | First-time buyers, lower credit |
| Conventional (Fannie/Freddie) | 620 | 3-20% | Good credit, lower PMI |
| VA | No minimum (most lenders: 620) | 0% | Veterans, active military |
| USDA | No minimum (most lenders: 640) | 0% | Rural areas, low-moderate income |
| Jumbo | 700-720 | 10-20% | Loans above $806,500 |
The minimum scores above are program minimums, but individual lenders may require higher scores. Shopping multiple lenders is important—some may approve you at 580 while others require 620 for the same FHA loan. Use a mortgage affordability calculator to estimate how much house you can afford at your current credit level.
How Credit Score Affects Your Interest Rate
Your credit score directly impacts the interest rate lenders offer. The relationship isn’t linear—the biggest rate jumps happen below 680, where each 20-point drop can add 0.125-0.25% to your rate.
| Credit Score | Estimated Rate (30yr fixed) | Monthly Payment ($350K loan) | Total Interest (30yr) |
|---|---|---|---|
| 760+ | 6.25% | $2,155 | $426,000 |
| 740-759 | 6.375% | $2,184 | $436,000 |
| 720-739 | 6.50% | $2,212 | $447,000 |
| 700-719 | 6.75% | $2,270 | $467,000 |
| 680-699 | 7.00% | $2,329 | $488,000 |
| 660-679 | 7.375% | $2,414 | $519,000 |
| 620-659 | 7.75% | $2,502 | $551,000 |
A 760 score vs. 620 score = $347/month more on a $350K loan — $125,000 over 30 years.
The cost difference is staggering. Improving your score from 620 to 740 before buying could save enough over 30 years to fund a comfortable retirement or pay for a child’s college education. If your score is below 700, consider spending 6-12 months improving it before applying—the savings far outweigh the wait.
Credit Score Ranges and What They Mean
| Score Range | Rating | Mortgage Eligibility |
|---|---|---|
| 300-579 | Poor | FHA only (10% down required) |
| 580-619 | Fair | FHA (3.5% down), limited conventional |
| 620-679 | Good | Conventional, FHA, VA, USDA |
| 680-739 | Very good | All loan types, good rates |
| 740-799 | Excellent | Best rates available |
| 800-850 | Exceptional | Best rates (same as 740+) |
PMI Costs by Credit Score
Private mortgage insurance (required with < 20% down on conventional loans) varies by score:
| Credit Score | PMI Rate (Annual) | Monthly PMI on $350K Loan | Annual Cost |
|---|---|---|---|
| 760+ | 0.25-0.40% | $73-$117 | $875-$1,400 |
| 740-759 | 0.30-0.50% | $88-$146 | $1,050-$1,750 |
| 720-739 | 0.40-0.65% | $117-$190 | $1,400-$2,275 |
| 700-719 | 0.55-0.80% | $160-$233 | $1,925-$2,800 |
| 680-699 | 0.70-1.00% | $204-$292 | $2,450-$3,500 |
| 660-679 | 0.90-1.20% | $263-$350 | $3,150-$4,200 |
| 620-659 | 1.10-1.50% | $321-$438 | $3,850-$5,250 |
FHA vs. Conventional: Which Is Better for Your Score?
| Credit Score | Better Loan Type | Why |
|---|---|---|
| 500-579 | FHA (only option) | Conventional requires 620+ |
| 580-619 | FHA | Lower rates, 3.5% down |
| 620-659 | FHA (usually) | Better rates than conventional at this score |
| 660-699 | Compare both | FHA has lifetime MIP; conventional PMI drops at 80% LTV |
| 700-739 | Conventional | Lower PMI, PMI cancellation at 80% |
| 740+ | Conventional | Best rates, lowest PMI |
FHA trade-off: Lower credit requirements but mortgage insurance lasts the entire loan (unless you refinance). Conventional PMI drops off at 80% LTV.
Many first-time buyers default to FHA loans, but if your score is 680+, run the numbers both ways. The lifetime cost of FHA mortgage insurance can exceed the upfront savings from a slightly lower rate. Understanding what hurts your credit score helps you avoid common mistakes while preparing for your purchase.
How to Improve Your Score Before Buying
The fastest way to boost your score is lowering your credit utilization—the percentage of available credit you’re using. Even if you pay your cards in full each month, your score reflects the balance on your statement date.
| Action | Potential Score Increase | Timeline |
|---|---|---|
| Pay down credit cards below 30% utilization | +20-50 points | 30-60 days |
| Pay down to below 10% utilization | +30-65 points | 30-60 days |
| Become an authorized user on old account | +15-30 points | 30-60 days |
| Dispute and remove errors | +25-100 points | 30-90 days |
| Pay off collections (pay-for-delete) | +25-75 points | 30-90 days |
| Don’t apply for new credit | Prevents drops | Ongoing (6-12 months) |
| Let negative marks age | +5-10 points/year | 12-24 months |
Timeline: Getting Mortgage-Ready
| Current Score | Target | Steps | Estimated Timeline |
|---|---|---|---|
| 500-550 | 580 (FHA) | Pay collections, lower utilization | 3-6 months |
| 550-600 | 620 (conventional) | Pay down balances, dispute errors | 3-6 months |
| 600-660 | 700 (better rates) | Lower utilization, age accounts | 6-12 months |
| 660-720 | 740 (best rates) | Fine-tune utilization, patience | 3-12 months |
What Lenders Actually Look At
| Factor | Weight | Details |
|---|---|---|
| Payment history | 35% | On-time payments on all accounts |
| Credit utilization | 30% | Balances vs. limits on revolving credit |
| Length of credit history | 15% | Age of oldest account and average age |
| Credit mix | 10% | Installment + revolving accounts |
| New credit inquiries | 10% | Hard pulls in last 12 months |
Mortgage shopping tip: Multiple mortgage inquiries within 14-45 days count as one hard pull on your credit score.
Key Takeaways
- Minimum score: 500 (FHA, 10% down), 580 (FHA, 3.5% down), 620 (conventional) — VA and USDA technically have no minimums
- A 760+ score gets the best rates — saving $125,000+ over 30 years vs. a 620 score
- The biggest rate jumps happen below 680 — focus on getting above this threshold
- FHA is better below 700; conventional is better above 700 due to PMI differences
- You can improve your score 50-100 points in 3-6 months by paying down balances and fixing errors
- Check your average credit score to see how you compare nationally