When you apply for a mortgage, lenders will carefully review your credit report, which gives them a snapshot of your financial responsibility and repayment history. They want to see how you’ve handled debt in the past and whether you’re likely to keep up with a mortgage payment.
Mortgage lenders will assess your credit report beyond your credit score. They’ll check your FICO score, payment history, credit utilization, and any red flags. These factors determine whether you get approved and the interest rate you’ll get.
You may also notice soft and hard inquiries on your credit report. Lenders typically pull hard inquiries, which can lower your credit score by a few points (more on this later).
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What lenders look for on your credit report
So, what do mortgage lenders look for on credit reports?
According to the Consumer Financial Protection Bureau (CFPB), your credit score is a major factor in getting approved for a mortgage loan.[1] For this reason, most lenders focus on these five major categories that make up your FICO score:
Payment history (35%)
Lenders want to see if you’ve paid your past bills on time. Late payments, defaults, and collections raise red flags.
Credit utilization (30%)
How much of your available credit are you using? A high credit utilization ratio can make you appear overextended and therefore like a risky loan recipient.
Length of credit history (15%)
How long have you been using credit accounts responsibly? A long track record of responsible borrowing builds trust.
Credit mix (10%)
Lenders will also want to see your ability to manage multiple debts and different credit types. This can include a mix of credit cards and installment loans (such as car loans, student loans, mortgages, and personal loans).
New credit (10%)
Lenders also check if you’ve recently applied for other forms of credit. Opening multiple credit accounts within a short timeframe may signal risk, especially if you don’t have a long credit history.
Beyond your score, lenders also look at these other factors in your report:
- Public records, such as bankruptcies, foreclosures, liens, and civil judgments
- Open and closed accounts to review all of your active and past credit lines
- Account balances to determine current debt levels
- Credit inquiries, including both soft and hard inquiries
- Employment and address history.
Which credit score and credit report do mortgage lenders use?
Wondering which credit report do mortgage lenders use? Most lenders use a tri-merge report from all three major credit reporting bureaus: Equifax, Experian, and TransUnion.
These agencies don’t use newer consumer-friendly versions like FICO Score 8, 9, or 10. Instead, they use older versions tailored for mortgages, including FICO Score 2, 4, and 5.
Each bureau may generate a slightly different score. Instead of averaging scores, mortgage lenders often use median FICO scores to determine your eligibility. This is different for multiple borrowers, such as spouses and co-borrowers — in those cases, lenders will use the lower of the two FICO scores.
How often do mortgage lenders check your credit?
You may be asking yourself: How many times do mortgage lenders check your credit? In most cases, lenders pull your report at least twice during the mortgage process.
First credit check at preapproval
Before you start house hunting, you need to get preapproved for a mortgage. During preapproval, lenders will review your credit and finances to determine how much mortgage you may be able to borrow.
Second credit check before closing
Lenders will also check your credit before you close on your mortgage. This is to confirm nothing has changed since you began the application, such as taking a new loan, accumulating credit card balances, or missing payments.
When lenders check your credit, they often do hard credit pulls, which may have a slight negative impact on your score. However, multiple hard inquiries during rate shopping (14-45 day window) usually count as a single inquiry. Soft credit pulls don’t impact your credit score.
Pro tip: Use this free CFPB tool to see the range of mortgage rates you can expect.
How public records affect mortgage approval
Public records, such as bankruptcies, foreclosures, and judgements, can affect your mortgage because they reveal red flags that lenders look for when evaluating your eligibility. Here’s how long the various types of public records remain on your credit report:
- Chapter 7 bankruptcy: Stays on your report for 10 years.
- Chapter 13 bankruptcy: Appears on your credit report for seven years.
- Foreclosure: Also remains on your report for seven years.
Here are the wait times to get discharged from the various public records to qualify for types of mortgages.
| Conventional loan | FHA loan | VA loan | USDA loan | |
|---|---|---|---|---|
| Chapter 7 bankruptcy | 4 years | 2 years | 2 years | 3 years |
| Chapter 13 bankruptcy | 2 years | 1 year of on-time payments | 1 year of on-time payments | 1 year of on-time payments |
| Foreclosure | 7 years | 3 years | 2 years | 3 years |
These records can stay on your report for up to 7-10 years, so reestablishing your credit after such events is crucial. Paying your bills on time and reducing debt can help you recover faster.
Note: It’s important to note that bankruptcy is the only public record that gets reported to the three major credit reporting agencies. Tax liens and civil judgments used to appear in credit reports, but credit bureaus stopped including them in credit histories in 2018.
Other financial factors lenders consider
While your credit report plays a major role when assessing your eligibility for a mortgage, lenders also look at these factors.
Debt-to-income (DTI) ratio
Your DTI ratio is the percentage of your gross monthly income that goes toward debt. Lenders generally prefer a DTI ratio of 43% or less. However, some lenders accept higher ratios if you meet certain requirements.
Employment and income history
Lenders want to see how financially stable you are, so they’ll need verifiable income over the past two years. If you recently changed your job, lenders may ask for additional documentation to ensure income continuity.
Down payment size
Depending on the type of mortgage you’re applying for, you’ll need to make a down payment between 3.5% and 20%. The higher your down payment, the higher your mortgage approval odds.
Cash reserves and liquid assets
Lenders want reassurance that you’ll still be able to make mortgage payments if anything happens. They’ll review your checking and savings accounts, retirement accounts, and other liquid assets.
Collateral
The home itself serves as collateral for your loan. If you default, the lender can foreclose to recover their money. For high-asset borrowers, lenders may take a closer look at the property’s value and condition to ensure it’s a sound investment.
If you’re self-employed, expect more scrutiny. Lenders want to see the nature of your self-employment, stable income, the financial strength of your business, and the likelihood of your business generating consistent income to support ongoing mortgage payments.
How to improve your credit before applying for a mortgage
Your credit is a major factor lenders consider, so improving it before applying for a mortgage can increase your approval odds and help you get better rates. If your credit score isn’t in good standing, here’s a step-by-step plan you can follow to improve it.
1. Pull your credit reports
Start by reviewing your credit. You’re entitled to free weekly reports from each bureau — Equifax, Experian, and TransUnion — directly, or you can request them through AnnualCreditReport.com.
Check for identity errors, incorrect reporting of accounts, incorrect balances or credit limits, and payment statuses showing as late when they were on time. Catching errors early gives you time to correct them before applying.
2. Fix errors
Errors on your credit report can negatively impact your score. If you spot any error, file a dispute with the credit reporting company. Provide any supporting documents, like payment receipts or settlement letters.
3. Pay down credit card balances
Improving your credit utilization ratio — how much of your available credit you’re using — is one of the fastest ways to boost your score. Aim to get utilization under 30%, and if possible, closer to 10%.
To lower your credit utilization:
- Focus on paying off high-interest cards first
- Make extra payments mid-month, not just at the due date
- Avoid maxing out a single card, even if your utilization ratio is under 30%
4. Avoid opening new credit lines
Every time you apply for new credit, the lender does a hard inquiry on your report, which can reduce your credit score by a few points. It will also lower the average age of your credit accounts. Unless absolutely necessary, wait until after you close on your mortgage to open any new lines of credit.
5. Ask about rapid rescore
If you recently paid down a large balance, you don’t have to wait for the next monthly reporting cycle for the changes to reflect on your report.
Some lenders offer a rapid rescore, where they pay a fee to the credit reporting company to update your credit information. This could potentially improve your credit score and boost your approval odds.
6. Monitor changes using free credit tools
As you work on improving your credit score, keep an eye on your credit. Many banks, credit card companies, and third-party services offer free credit monitoring tools that send alerts if there are major changes. This helps you track improvements and catch any new errors quickly.
Loan options for buyers with fair or poor credit
If your credit score isn’t perfect, there are several other mortgages you can qualify for.
FHA loans
These loans are ideal for first-time home buyers, and you could be eligible with a credit score as low as 580 if you want to put down as little as 3.5%. You’re also eligible if your score falls between 500 and 579, but you must put 10% down.
While FHA loans include mortgage insurance premiums (MIP), they have more lenient requirements than conventional loans.
VA loans
Designed for veterans, service members, and eligible spouses, most lenders require a score of 620 or higher. Plus, VA loans require no down payment and no mortgage insurance.
USDA loans
If you're in an eligible rural or suburban area, you can qualify for a USDA loan with a score of at least 640. This type of mortgage requires zero down payment.
HomeReady or Home Possible programs
Both programs offer mortgages designed to help low- and moderate-income borrowers. You need a score of 620 or higher.
They also offer reduced mortgage insurance costs compared to standard conventional loans.
Get your credit mortgage-ready
Lenders they want a clear picture of your ability to manage monthly payments. Your credit score plays a big role in determining your eligibility, but it’s not the only factor. Lenders also review your income stability, debt levels, public records, and cash reserves.
Improving your credit score before applying for a mortgage can increase your chances of approval and potentially get you better rates. Take time to check your report, dispute errors, pay down debt, and avoid applying for new credit lines.
Find a trusted agent to guide you — get started on your homebuying journey with Clever today!
FAQs
What credit score do I need to buy a $300,000 house?
There’s no specific credit score requirement to buy a $300,000 house. In most cases, it depends on the loan program. For conventional mortgages, you need a score of 620 or higher, and a score as low as 500 or 580 for government-backed loans.
What debt do mortgage lenders consider?
Lenders consider all debts listed on your credit report, including credit cards, auto loans, student loans, personal loans, and child support or alimony payments.
What shows up on a mortgage credit check?
When a mortgage lender performs a credit check, your personal information, credit accounts and history, public records, and credit inquiries show up.
What do mortgage lenders look for if I’m self-employed?
They’ll want to see at least two years of steady income, a strong credit score of at least 620, a DTI ratio of 43% or less, and cash reserves to cover mortgage payments in case of business downturns.
Does my credit score affect the mortgage interest rate?
Yes. The higher your credit score, the lower the mortgage interest rate you’ll get. Even a small difference of 50 points can save thousands over the life of a mortgage.