Missing a Single Payment Can Drop a Credit Score by Up to 80 Points

A solid credit score will open many doors when it comes time to finance important purchases, such as a home.

Mortgage lenders look at credit scores to determine what kind of rate someone qualifies for, whether it's a 15- or 30-year fixed-rate mortgage or an other type of home loan.

Currently, mortgage interest rates are 6.06% for the week ending Jan. 15, according to Freddie Mac. That's down .10% from last week—when rates averaged 6.16%.

A FICO (Fair Isaac Corporation) scores range from 300 to 850. A higher score shows a person is at a lower risk for missing a payment.

But just one missed payment can drop a score by about 80 points, according to a LendingTree report. The research shows that consumers with one missed payment have an average credit score of 553. Those who have missed payments also have lower credit limits—at just $6,822 on average, compared with $20,387 among those without missed payments.

What it takes to have an excellent credit score

An excellent credit score is between 800 to 850, and that allows for more opportunities to secure loans, especially lower mortgage interest rates, but boosting your score isn't so easy.

Researchers behind the LendingTree study analyzed the credit reports of 100,000 LendingTree users with credit scores of at least 800. It found on average, 100% of those pay their bills on time every month.

But Americans with a credit score of 800 and up—aren't debt-free. The report reveals that these high credit score individuals have an average debt of $171,553—including mortgages. The average debt among those with 800-plus credit scores is the highest among millennials ($226,709) and the lowest among Gen Z ($95,779).

Americans with the highest credit scores are making average monthly debt payments of $1,945, according to the report.

"It’s, by a mile, the most important part of your credit score," Matt Schulz, LendingTree chief consumer finance analyst said. "That makes sense, given that the whole point of a credit score is to help lenders understand how likely you are to pay your bills on time. Of course, as the saying goes, past performance doesn’t guarantee future success when it comes to paying bills, but it’s hugely important to your score."

Credit scores needed for a home loan

Conventional loans, such as a 15- or 30-year fixed mortgages, which are the most commonly used mortgage loans, require a minimum credit score of 620. These loans are not insured by a government agency and follow certain standards set by government-sponsored entities Fannie Mae and Freddie Mac. The higher your credit score, the better rate you will receive.

Another conventional loan—jumbo loans—require a minimum credit score of 700 because of the higher loan amount.

Government-backed loans, such as a Federal Housing Administration or Veterans Affair loans, do not have a minimum credit score set by a federal agency, but mortgage lenders may require a score of 580 to 620 for a loan.

How to boost your credit score

If you want to boost your credit score, the first place to start is by checking the three credit bureaus—Equifax, Experian, and TransUnion—to find out what your score is. This will give you an idea of what kind of loan you qualify for.

"Additionally, I would suggest checking your credit score at least once a year or having a credit monitoring service set up so that you can quickly identify any changes in real time," Jessica Vance, real estate agent and mortgage broker, tells Realtor.com®.

Financial experts say paying bills on time should be a priority. Payment history accounts for 35% of your credit score. Late payments stay on your credit report for seven years.

It's important to keep credit card balances low. Lenders will look at a person's credit utilization—that's the amount of debt you have compared to your available credit. For example, if you have $10,000 in debt and $20,000 in available credit, your credit utilization is 50%. Lenders prefer to see credit utilization of 30% or less.

If you're able to zero out your credit cards, don't be ready to cut them just yet. Experts say it's not advised to close older credit lines after paying them off because closing unused accounts might raise your credit utilization ratio and cause your score to drop.

FICO recommends not opening new credit cards to increase your credit utilization ratio. Each credit request can lower your score.

Boosting your credit score back up can take years to significantly move the needle, but small steps should help you start seeing progress.

"You can start seeing improvement in your credit score in about three months," Melanie Musson, finance expert at Clearsurance, tells Realtor.com. "Improvements happen slowly, but if your score steadily increases, you could be in a new and better risk category within a year."