If you are applying for a home mortgage keep in mind that your credit score will more then likely affect your mortgage interest rate. Each of the three major credit bureaus, Equifax, Experian and TransUnion, collects data from your current and past creditors about your history of borrowing and paying back credit. If you have a poor payment history you credit score will be reduced and your mortgage interest rate will be higher. If you have a good payment history and have a higher credit score you can expect your mortgage interest rate to be lower.
Although your credit scores have major impact on your rates, there are some portfolio lenders that care more about the ratio of your loan amount to the value of your home. If you can lower that ratio, the lender may be more forgiving on your credit score.
If your credit score is below 500, or you have an open foreclosure, you can expect mortgage rates in the double digits due to the severe risk assumed by the lender. You should also expect to borrow a substantially lower percentage of the value of your home, so that means either a lot (40% or more) of equity in your home in a refinance or a 35% to 40% downpayment if you are attempting to purchase a home.
Your credit scores are a big factor when it comes to which lenders will accept your application for a loan and which lenders will turn you down. The higher your score the more lenders you will have at your picking with a variety of programs to choose from.
Your Credit Score usually is one factor in determining your mortgage rate. Lenders will often start with a base rate for the borrowers with higher credit scores then raise rates as credit scores decline.
It's virtually impossible to change your score in the time between when most people decide to buy a home or refinance their mortgage and when they apply. The higher your score, the less of a risk the investor takes.
In most cases, if the loan applicants have very high scores, such as over 720, and with no negative entries in the credit report, banks would approve the applications without requiring income and asset documentations such as W2's, paystubs, and bank account statements, while still offering the low interest rates of full documentation loans.
FHA and VA loans generally do not punish people with lower credit scores, as long as the overall credit meets their guidelines.
Having a high credit score does not guarantee that your loan will be approved by a lender, nor does it guarantee that you are going to qualify for the best rates available. There are numerous other factors involved such as what type of income documentation is required (for example stated, NINA, NIVA, No Doc, full doc, etc...), the purpose of the loan, the LTV (loan to value) of the loan, amount of reserves, any prior bankruptcies, and many, many other factors will help to determine whether you qualify for a mortgage altogether and what type of rate you will qualify for. Therefore, don't fall into the trap of thinking that you are going to get a certain rate just because your credit score is extremely high (although it does help) or you are going to get a really bad rate because your credit score is a little below where the lender prefers it to be. There are many situations when compensating factors come into play and your mortgage rate can be affected by more than just your credit score alone.