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Does your credit score affect your mortgage rate? There's no question that it does. This three-digit score has a profound impact on whether you'll be approved for a loan from the best mortgage lenders as well as the interest rate you'll pay for a home loan.
So how exactly does your credit score affect your mortgage rate? Here's what you need to know about credit scores and getting a mortgage loan.
The table below tells you the answer to the question "does credit score affect mortgage rates." It shows what you'd pay per $100,000 in mortgage debt with various credit scores if you took out a 30-year fixed-rate mortgage.
FICO® Score range | Mortgage APR | Monthly payment | Total interest | Extra interest compared with excellent credit |
---|---|---|---|---|
760-850 | 7.418% | $694 | $149,699 | $0 |
700-759 | 7.64% | $709 | $155,177 | $5,478 |
680-699 | 7.817% | $721 | $159,577 | $9,878 |
660-679 | 8.031% | $736 | $164,934 | $15,235 |
640-659 | 8.461% | $766 | $175,815 | $26,116 |
620-639 | 9.007% | $805 | $189,845 | $40,147 |
You could pay more than $40,000 in extra interest per $100,000 borrowed if your score is very low compared to very high. Even dropping down just one score range could cost more than $5,000 in extra interest for each $100,000 borrowed over the life of your loan.
The answer to the question "does credit score affect mortgage rates" is a resounding yes. So it's imperative you do everything possible to improve your credit before applying for a mortgage.
Some steps to take include:
RELATED: How to Understand Your Credit Score
It can pay to take a few extra months to boost your credit score before applying for a mortgage loan. But raising your credit score could save you thousands of dollars in interest over the life of the loan.
You can also consider shopping with the best mortgage lenders for first-time home buyers if your credit is imperfect. They may be more forgiving of a lower credit score.
It's important to have good credit when you apply for a mortgage, especially if it's one of the best mortgage lenders.
By working to get a good credit score, you can secure the most favorable terms possible for your mortgage -- and your loan should be more affordable to pay back due to your efforts.
Here are some other questions we've answered:
If you want to uncover more about the best mortgage lenders for low rates and fees, our experts have created a shortlist of the top mortgage companies. Some of our experts have even used these lenders themselves to cut their costs.
It depends on the type of mortgage loan you're getting. Government-backed mortgage options, like FHA loans, VA loans, and USDA loans, often have more lenient credit score requirements than conventional loans. For example, with 10% down, you can get an FHA loan with a credit score of 500. If you have a credit score of at least 580, you can put down 3.5%. For a conventional loan, however, it's best to have a credit score of at least 620 -- but the higher your score, the better your rate.
It certainly can. Every time you take on new debt (or even have your credit checked with a hard inquiry), it has a negative impact on your score. That said, if you make your new mortgage payments in full and on time every month, your credit score will recover.
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