The impact of credit scores on mortgage underwriting

The impact of credit scores on mortgage underwriting

Home Buyer's Guide | May 9, 2023 | 10 min read

When it comes to the complex process of purchasing a home, it can evoke both feelings of excitement and overwhelm. One of the crucial aspects of this process is mortgage underwriting, where your credit score carries immense weightage. Your credit score is a primary factor that lenders consider during underwriting and can significantly affect your chances of obtaining a home loan, as well as it’s rate of interest.

In this blog, we will explore the role that credit scores play in mortgage underwriting and the ways in which they can affect your loan application.

What is mortgage underwriting?

Mortgage underwriting is the process through which mortgage lenders evaluate the risk of lending money to potential borrowers. This involves evaluating various aspects of the borrower’s financial history, such as their credit score, income, employment history, and debt-to-income ratio, to determine whether they are eligible for a mortgage loan and the terms and conditions that will apply.

The underwriting process is essential because it helps lenders make informed decisions on loan approvals, which, in turn, ensures that they can minimise their risk of financial loss. If the underwriter determines that the borrower is eligible for a mortgage loan, they will also determine the appropriate loan terms, including the interest rate, duration of the loan, and the size of the down payment.

How does credit score affect mortgage underwriting?

Your credit score has a major role in mortgage underwriting. Mortgage lenders make use of your credit score to determine whether you are likely to pay back the loan on schedule and in its entirety.

If your credit score is low, the mortgage underwriting process may become more complex, and the lender may require additional documentation, verification of your income and employment, or other compensating factors to offset the risk. Moreover, a low credit score may result in higher interest rates or even stricter loan terms for your mortgage application.

On the other hand, having a high credit score can increase the likelihood of obtaining approval for a mortgage with favourable terms and conditions. If your credit score is good, lenders may provide you lower interest rates, higher loan amounts, greater flexibility in payment options and other favourable loan terms.

Any changes to your credit score during the underwriting process, such as late payments or new debts, can impact your loan approval and terms. Hence, it’s crucial to keep an eye on your credit score and promptly deal with any concerns to enhance your likelihood of obtaining approval for a mortgage.

How to monitor your credit score during mortgage underwriting

During the mortgage underwriting process, it is essential to monitor your credit score to ensure that it remains stable and does not hinder the approval of your home loan. Here are some pointers on how to monitor your credit score during mortgage underwriting:

  • First, avoid applying for new credit during the mortgage process. This includes opening new credit card accounts, applying for a car loan, or increasing credit limits. Such activities can impact your credit score negatively.
  • Second, it is crucial to maintain a low credit utilisation rate during this period. Credit utilisation is the amount of credit you use compared to your credit limit, and it makes up 30% of your credit score. It is best to keep your credit utilisation rate below 30%.
  • Third, ensure that you pay every account on time. Late payments can have a severe impact on your credit score, and one missed payment can take off 60-120 points. Consider setting up automatic payments if you struggle to pay your bills on time.
  • Finally, if you have old collection accounts, it is advisable not to contact the creditor or dispute the balance, as any activity on the account can make it new again. Keep in mind that old accounts get less weight in credit scoring models.


Credit scores play a crucial role in the mortgage underwriting process. A low credit score can result in strict loan terms or a higher interest rate, whereas a good credit score can lead to faster loan approval and lower interest rates. It is important to monitor your credit score and maintain good credit habits during the mortgage process to ensure a successful outcome.

If you need financial assistance for your home-related needs, consider checking out HomeCapital‘s personal loan option of up to ₹15 lakhs, designed to cater to all your home-related requirements while offering smart credit solutions.

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