What makes up your credit score?

Key takeaways

• Payment habits matter most. Payment history makes up the largest share of a credit score, and missed or late payments can quickly derail your ability to qualify for favorable mortgage terms. 
• Credit scores directly affect mortgage costs. Even if you qualify for a loan, a lower credit score can mean higher interest rates, fees and mortgage insurance premiums — potentially costing tens of thousands of dollars over the life of the loan. 
• Strong credit management pays off long term. Keeping balances low, limiting new credit applications and monitoring your credit regularly can improve your score and help secure better financing when buying a home. 

Your credit score is a numerical measure of how likely you are to repay debt on time. Higher scores typically unlock better mortgage terms and lower interest rates.

Credit bureaus such as Equifax, Experian and TransUnion collect and maintain consumer credit data. That information is used to generate credit reports, which are then analyzed by scoring models such as FICO and VantageScore to produce credit scores. In short, bureaus supply the data, and scoring models interpret it to assess creditworthiness.

Most credit scores fall between 300 and 850. FICO says five factors determine a consumer’s score: payment history, amounts owed, length of credit history, new credit and credit mix.

Payment history is the single largest factor, accounting for about 35% of a FICO score. Consistently paying bills on time signals financial responsibility and boosts your score. Late or missed payments can cause significant damage, while collections and charge-offs — when a lender stops trying to collect a debt — typically lead to steeper declines.

Amounts owed make up 30% of a credit score. A key metric is credit utilization on revolving accounts, or how much available credit you’re using. High utilization can suggest financial overextension and a greater risk of late payments.

FICO also considers:

• Total debt across all accounts. 
• Debt by type, including revolving accounts such as credit cards and installment loans like auto, student and mortgage loans. 
• The number of accounts carrying balances. 
• Credit utilization ratios, with lower usage generally viewed more favorably than maxed-out or unused credit. 
• Remaining balances on installment loans compared with their original amounts. 

The length of your credit history accounts for 15% of your score. FICO evaluates:

• The age of your oldest and newest accounts. 
• The average age of all accounts. 
• How long individual accounts have been active. 

New credit represents 10% of your score and reflects activity within the past 12 months. FICO reviews:

• The number and types of newly opened accounts. 
• Recent credit inquiries from lenders. 
• How long it has been since you last opened an account. 

Credit mix accounts for 10% of a credit score and refers to the variety of credit types you use, such as credit cards, lines of credit, auto loans and student loans. A diverse mix can work in your favor, though it carries less weight than payment history or debt levels.

The best way to evaluate your creditworthiness is to review your credit report. Many banks offer free access, and consumers may be entitled to no-cost reports from FICO, Equifax, Experian or TransUnion.

Credit plays a critical role in home financing.

“Your credit scores and credit history are hugely important to your ability to qualify for a mortgage, as well as the rate and fees you will pay,” said Todd Huettner, owner of Huettner Capital in Denver, Colorado. "A score difference of 100 points can save or cost you tens of thousands of dollars in fees and interest on the same loan.”

Lenders require borrowers to meet minimum credit-score thresholds.

"Your score either is or isn’t high enough to qualify,” Huettner said.

As a general guideline, FHA loans may be available with scores as low as 580. Conventional and conforming loans that meet Fannie Mae and Freddie Mac standards typically require a minimum score of 620. Jumbo loans often require scores between 700 and 720.

“There are options for lower credit scores, but those loans usually come with much higher fees and interest rates,” Huettner said.

Credit scores do not change standard down payment requirements or maximum loan-to-value ratios. However, down payments under 20% usually require mortgage insurance.

“That adds another layer of underwriting where credit scores and credit history can matter,” Huettner said.

Lower scores generally result in higher monthly mortgage insurance premiums.

Maintaining strong credit habits is key. Pay bills on time, monitor your credit regularly and limit applications for new credit.

Those steps can help secure a lower interest rate when buying a home — and save thousands of dollars over the life of a mortgage.