When you’re looking to buy a home, your credit score can have a significant impact on the mortgage rate a lender is willing to offer you. As you’d expect, a high credit score will yield a lower interest rate, which could lead to lower monthly mortgage payments. Here, we’ll discuss what credit scores get the best rates — and how you can achieve these credit scores for yourself.
In general, the lowest interest rates are given to those with a credit score above 740 points. This is considered an excellent rating by the credit bureaus. Above this threshold, your exact credit score matters less and lenders rely on other factors, such as your income level and the type of loan you are seeking, to adjust the interest rate you are quoted.
620 – 739:
For those with credit ratings that are not above the excellent threshold, most lenders adjust the price based on 20-point credit score increments. This means that even small changes in your score can affect your interest rate, which could amount to thousands of dollars in payments over the life of a 30-year fixed mortgage.
If your credit score drops below 620 points, you will likely be subject to higher rates and may even have trouble acquiring a loan. If you fall under this range, it may be best to work on your credit score before you consider obtaining a mortgage.
Before you improve your credit score, it’s best to get a credit report to see where you stand. There may be mistakes that you can get corrected, or there may be an indication of areas that you need to improve.
The factors that have the most significant impact on your credit score include:
It’s usually better to have a variety of credit lines with a long history of paying on-time. You also want to be careful not to shop around too much for a mortgage because too many credit inquiries in a short period can also negatively impact your credit score.
Use these tips to boost your credit score a bit before you shop around for a home, but don’t wait too long. You never know when interest rates are going to rise!