When applying for a home loan, one of the most important factors lenders consider is your credit score. This three-digit number can make or break your mortgage deal, affecting both your interest rate and your total monthly payment.
Let’s break down exactly how your credit score influences mortgage rates – and what you can do to get the best deal.
What Is a Credit Score?
A credit score is a number ranging from 300 to 850 that reflects your creditworthiness. It’s based on:
- Payment history
- Credit utilization
- Length of credit history
- Types of credit
- New credit inquiries
Higher score = Lower risk = Better mortgage rate
The Link Between Credit Score and Mortgage Rate
Lenders offer the lowest mortgage rates to borrowers with excellent credit. Why? Because these borrowers are seen as low-risk. On the other hand, if your score is lower, you may face:
- Higher interest rates
- Larger monthly payments
- Stricter loan terms
Here’s a rough example for a 30-year fixed-rate mortgage of $300,000:
| Credit Score | Estimated Rate | Monthly Payment |
|---|---|---|
| 760–850 | 6.2% | $1,839 |
| 700–759 | 6.5% | $1,896 |
| 620–639 | 8.1% | $2,212 |
Note: Rates vary by market and lender.
Credit Score Brackets and Their Impact
- 760 and above: Excellent-qualifies for best rates
- 700-759: Very Good-near-best rates
- 660-699: Good-acceptable but may pay slightly more
- 620-659: Fair-higher rates, fewer lender options
- Below 620: Poor-limited approval chances, high interest
Why Rate Differences Matter
Even a 0.5% difference in mortgage rate can cost you thousands of dollars over the life of the loan. That’s why improving your credit before applying is worth it.
For example:
- At 6% on a $300,000 loan = ~$1,799/month
- At 7% = ~$1,996/month
- That’s $197 more every month and over $70,000 extra across 30 years!
How to Improve Your Credit Score Before Applying
- Pay bills on time – Timely payments boost your score.
- Lower your credit card balances – Keep usage under 30%.
- Don’t open new accounts – Avoid new inquiries before applying.
- Check your credit report – Dispute any errors.
- Avoid missed payments – Even one late payment can hurt.
Can You Get a Mortgage with Bad Credit?
Yes, but it’s harder. You may:
- Need a higher down payment
- Pay higher interest rates
- Be limited to FHA or subprime loans
Some government programs (like FHA loans) allow scores as low as 580, but expect to pay more overall.
Final Thoughts
Your credit score plays a major role in how much you’ll pay for a mortgage. A few extra points can mean better rates, smaller monthly payments, and huge savings over time.
Before applying, take steps to boost your score – it could make homeownership more affordable than you think.