Becoming a homeowner has become increasingly more challenging for many, with monthly housing payments recently hitting a record high of $2,563 — a 29% increase from 2022. Sky-high mortgage rates , which are expected to keep climbing, have left both homebuyers and owners feeling increasingly pessimistic about the housing market outlook . So, if you're in the market for a mortgage or a refinance, it’s more important now than ever to ensure you can secure the lowest mortgage rate possible. One way it can be done is by prioritizing a good credit score .
Credit score impact on mortgage rates
Lenders take into account a variety of factors when determining the interest rate on your mortgage, including down payment, loan term and the price of the property. However, the biggest factor determining your mortgage rate is your credit score . Most lenders will take into account your FICO (opens in new tab) score, which can range from 300 to 850.
- 800 or higher: Exceptional
- 740-799: Very good
- 670-739 : Good
- 580-669: Fair
- 579 or lower: Poor
To qualify for a mortgage loan, you’ll likely need a score of at least 620. However, having a higher score can ease the financial burden of a mortgage as it can help get you lower rates. And the knock-on benefits continue — securing a low mortgage rate can help lower your monthly payments substantially, as shown in this data from MyFICO (opens in new tab) .
The chart shows how much you’d pay on current rates as of March 2023, based on a 30-year fixed mortgage of $350,000.
|FICO Score||APR||Monthly Payment||Total Interest Paid|
If you start with a credit score of 620-639, here’s how much you’d save over the course of your mortgage by boosting your credit score.
- If your score changes to 640-659, you could save an extra $47,086
- If your score changes to 660-679, you could save an extra $83,473
- If your score changes to 680-699, you could save an extra $101,343
- If your score changes to 700-759, you could save an extra $116,000
- If your score changes to 760-850, you could save an extra $134,220
Use our tool to find a mortgage deal that's right for you.
How to improve your credit score
Your credit score matters to lenders as it shows them how likely you’ll be able to repay your loan. If you have a higher credit score, lenders won’t see you as a risky borrower. And while you can still get approved for a mortgage with a bad credit score, you won’t be able to secure the lowest rates possible. If you’re looking to save on your mortgage rates, try following these steps to boost your overall credit score before applying.
Check your credit report: Before applying for a mortgage, get a copy of your credit report . You’ll be able to see a complete rundown of your credit history, helping you identify areas of your credit that are hurting your score, while also checking for any inaccuracies in the report. Having errors on your credit report is more common than you may think, so it’s important to get those fixed, by filing a dispute if any are found.
Make on-time payments: Payment history is the largest factor affecting your credit score, accounting for 35% of your total score. Because of this, it’s vital to always make payments on time, as missing payments can significantly decrease your score.
Pay off credit card balances: Credit utilization is the ratio between any debt you have compared to your total credit limit, and it makes up 30% of your overall credit score. Therefore, keeping your credit utilization as low as possible can help you up your overall credit score. A good rule of thumb is to keep your credit utilization below 30%.
Erin pairs personal experience with research and is passionate about sharing personal finance advice with others. Previously, she was a freelancer focusing on the credit card side of finance, but has branched out since then to cover other aspects of personal finance. Erin is well-versed in traditional media with reporting, interviewing and research, as well as using graphic design and video and audio storytelling to share with her readers.
Four Ways Women Can Take Control of Their Financial Health
Adjusting for life events, taking advantage of workplace benefits and preparing for caregiving can make a big difference in your financial future.
By Kate Winget • Published
What is APY?
Savings Here's everything you need to know about APY, the important factor in how much your savings could earn in a year.
By Erin Bendig • Published