Credit Scores and Home Loans: What Actually Matters (and What Doesn’t)

Buying a home is likely one of the biggest purchases you’ll ever make. When you do make that decision, it helps to be financially ready for your timeline. Unless you’re paying in cash, one of the first steps is being able to finance your purchase.

One critical component of qualifying for a home loan is your credit score — but it’s often misunderstood. To help clear things up, we spoke with Verity’s Community Financial Education Specialist about credit scores and what actually matters (and what doesn’t) when you’re getting ready to buy a home.

Credit Scores: Minimum vs. Ideal

Let’s start with the big question: What credit score do I need to buy a home?

• The ideal credit score is 740 or higher. This is where the best interest rates typically live.
• But a perfect score isn’t required. Some programs and organizations don’t rely solely on credit scores. For example, the Washington State Housing Finance Commission (WSHFC) offers programs where borrowers with credit scores below 620 may still qualify.

Your score helps determine your interest rate, but it’s only one piece of the full financial picture.

How Credit Scores Affect Your Mortgage Rate

In general, the higher your credit score, the lower your interest rate. Even a small difference in rate can cost you $100,000 or more over the life of a mortgage, so improving your credit before you apply can have a meaningful financial impact.

That said, rate isn’t everything. Loan programs, down payment assistance, debt-to-income ratio, and overall financial stability also play important roles.

Common Credit Myths (and the Truth)

There’s a lot of misinformation out there when it comes to credit. Let’s clear up some of the most common myths we hear from future homebuyers.

Myth: “Checking my own credit will lower my score.”
Truth: Checking your own credit is a soft pull and has zero impact on your score. Only hard pulls — like when you formally apply for a loan — can affect it.

Myth: “Carrying a small balance on my credit card helps my score.”
Truth: Paying your balance in full every month is best. You do not need to pay interest to build good credit.

Myth: “Closing old accounts cleans up my credit.”
Truth: Closing old accounts can actually lower your score by reducing your average age of credit.

Myth: “I have to pay off all collections before I apply for a mortgage.”
Truth: Paying off an old collection can sometimes temporarily lower your score by reactivating the account’s activity date. Always talk to a trusted lender or financial coach before making changes.

Myth: “My student loans will stop me from qualifying.”
Truth: Lenders look at your monthly payment, not the total balance. You don’t need to wait until student loans are paid off to buy your first home.

Myth: “Rate shopping will ruin my credit score.”
Truth: Credit bureaus understand rate shopping. If all mortgage inquiries happen within a 14–45 day window, they’re typically treated as a single inquiry.

Myth: “I should wait to buy until rates go down.”
Truth: When rates drop, home prices often rise. You can refinance a rate later — but you can’t refinance the price you paid for the home. Buying in a higher-rate environment may also give you more negotiating power for seller credits or repairs.

Fast Ways to Improve Your Credit in 60–90 Days

If homebuying is on your horizon, there are steps you can take to strengthen your credit relatively quickly.

Aim for 1–9% Credit Utilization

You may have heard that keeping balances under 30% of your limit is ideal — and that’s true. But the biggest scoring impact happens between 1% and 9%.

• Paying your credit cards down is always a positive step. In some scoring models, having every card report a zero balance may result in a very small, temporary point difference, because it appears you’re not actively using credit.
• The sweet spot: most cards at $0, and one card reporting a very small balance (around 1%).

Dispute Errors on Your Credit Report

Errors are more common than you might think. Fixing them can boost your score.

1. Pull your full credit report.
2. Review it for:

• Accounts reporting incorrect information
• Accounts that aren’t yours
• Duplicate accounts
• Outdated collections (collections older than 7 years should not appear under the Fair Credit Reporting Act)

3. Gather supporting documentation.
4. For best results, dispute errors directly with the credit reporting agencies in writing, typically by mail.

What Does Impact Your Credit Score

Understanding the basics can help you focus your energy where it matters most.

• Payment History: On-time payments are critical. Even one 30-day late payment can significantly lower your score.
• Credit Utilization: How much of your available credit you’re using.
• Credit Age: The age of your oldest account, newest account, and average age overall.
• Credit Mix: A variety of account types (credit cards, auto loans, student loans, mortgages). Having a diverse mix of account types shows lenders how you can successfully manage different forms of debt. 

What Doesn’t Impact Your Credit Score

These factors are often misunderstood, but they are not part of your credit score:

• Income
• Debit card usage
• How much money you have in the bank
• Personal characteristics such as age, race, religion, nationality, gender, or marital status

That said, as a Community Development Financial Institution (CDFI), Verity recognizes that while these factors don’t directly affect credit scores, the ability to build strong credit is often shaped by systemic barriers. These include language barriers, algorithmic bias, medical debt disparities, predatory lending, redlining, and the long-term impacts of historical and ongoing racial inequities.

That’s why we believe financial readiness isn’t just about numbers — it’s about access, education, and support.

Get Mortgage-Ready with Verity

Whether you’re planning to buy this year or just starting to think about it, understanding your credit is a powerful first step. Verity’s Financial Wellness and Mortgage teams are here to help you prepare with confidence — on your timeline.

Interested in learning more? Check out our community-centered program, Pathways to Wealth & Resources (PWR). We offer free, practical workshops that support financial well-being, stability, and long-term opportunity. Workshops are open to everyone — no Verity membership required.
Verity Credit Union is a federally designated Community Development Financial Institution (CDFI), committed to expanding access to financial tools and resources for communities historically excluded from traditional financial systems.