Matt Olson

Jul 31 2017

Credit Score Series: Part 2 How Lenders Use Your Credit Score

Credit Score Series: How Lenders Use Your Credit Score

Many financial institutions consider your credit score when making a loan decision. If you’re in the market for a mortgage, car loan, personal loan, or even a credit card, your credit score is going to directly impact how much you pay for the loan and if you’re approved or not. Before you apply for your next loan it’s good to know how the lender is going to use your credit score.

Watch my video and I’ll explain how lenders use your credit score when making loan decisions:

Your standard FICO credit score ranges from 300 to 850. When applying for a loan, the creditor is going to look at your score in conjunction with other factors to determine your interest rate and loan terms.

For a mortgage loan, lenders typically pull a credit report from each of the three major reporting bureaus. This is called the tri-merge report. For personal loans, car loans, and credit cards, lenders usually just look at one score. The lower the credit score, the higher your credit risk. The financial institution will compensate for that higher risk by charging a higher interest rate. A low credit score can also prevent you from being approved for a loan.

A credit score of 740 gets you the best interest rate with most lenders. To give you an example of how the interest rate affects your payments, let’s look at two borrowers, Eryn and Austin. Eryn has a 740 credit score and Austin has a 640 credit score. Both individuals are borrowing $100,000 on a 30-year house loan. With Eryn’s excellent credit score, she gets an interest rate of 4.50% and pays $507 per month. Austin has a rate of 5.50% and pays $568 per month. Austin pays $61 more each month than Eryn for the same amount of money because of his lower credit score. That may not seem like a large amount, but it adds up to over $20,000 over the course of the loan.

In addition to having an impact on the rate, your credit score will also determine the required down payment and length of loan. As your credit score drops the amount of down payment on your house or car loan increases. The lender may also shorten the loan term to make you pay back the loan quicker if your credit score is below average.

Thanks for watching my video. If your credit score needs some work, check out my video and blog post below titled, “Tips to Improve Your Credit Score.”

View the complete Credit Score Series:


Matt Olson

About Matt Olson

Matt Olson is Vice President, Mortgage Lending at Coralville's location at 1009 2nd Street. He has been at Hills Bank since 2004 helping customers with home purchases and refinancing needs. Matt can be reached at

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