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credit score and mortgage rate

Does My Credit Score Determine My Mortgage Rate?

by Jeralin-Admin on May 10, 2022

You’re in the market for a new home, and you want to iron out the details. You want to be sure of your budget and your financial standing before you truly begin your search. In order to move forward with the purchase of a home, you’ll need to know what mortgage rates you can get. One of the most frequent questions we hear from new buyers is a question we’ll answer in this blog today: 

Does My Credit Score Determine My Mortgage Rate?

The short answer is yes. Your credit score does have an impact on your mortgage rate. 

To be considered a trustworthy borrower, the higher your credit score and the better your credit history, the more likely you are to receive a lower mortgage rate.

Your credit score reflects your credit history, and mortgage lenders use this history to determine your level of responsibility when it comes to credit. Basically, it gives lenders a look into what they can expect should they decide to loan you money for a new home.

Therefore, your credit score has a direct influence on what a lender is willing to offer you. Higher credit scores equate to a lower interest rate, and lower credit scores will receive higher rates.

What Credit Score Do I Need for a Great Mortgage Rate?

Now that you know a bit of the basics of how credit score and mortgage rates go hand in hand, you may be wondering what an ideal credit score for purchasing a home would be. 

We’d like to stress to you that even if your credit score doesn’t fall into the ideal number range, buying and maintaining a home is still very much a possibility. It’s just important for any homeowner to understand how their credit score will impact the mortgage rate they are likely to get. Let’s take a closer look at how average credit scores usually translate to mortgage rates in today’s current market (May of 2022). 

If you have a credit score between 760-850 (excellent)

The ideal credit score for a homebuyer is around 760-850. This is just about the best it gets as far as credit goes, and mortgage lenders know that. With a credit score in this range, you can expect much lower interest rates, with the national average for a 30-year fixed-rate mortgage falling right around the 4% (or just slightly higher) mark. 

If you have a credit score between 700-759 (very good)

If your credit score hasn’t quite hit the ceiling for excellence yet, it’s good to know that you’re not losing too much. In general, the national average for the same 30-year fixed-rate mortgage at this credit score is somewhere around the 4.2% range. 

If you have a credit score between 660-699 (good)

If your credit score is in the range of 660-699, your interest rate would be somewhere between 4.6%-4.8%. It’s worth noting that this range sees a pretty significant jump, regardless of where national mortgage rates fall at the time you apply for a loan. If you can get your credit score up to that 700 range, you’ll likely save a lot in the long run. 

If you have a credit score between 620-640 (fair)

If your credit score falls a little closer to the fair range, with a number somewhere between 620-640, you should be prepared for a much higher interest rate of around 5.7% or even higher. It’s worth nothing that this is significantly higher than the other categories, and this math of those with lower scores paying significantly more in mortgage tends to hold true even when mortgage rates were very low in early 2021. Though you’ll still pay less when rates are low, those with a lower credit score in this range face much higher rates than those with a higher score. 

Can You Purchase a Home with a Low Credit Score?

Purchasing a home with a credit score in the lower range is certainly more difficult, but by no means is it impossible. A low credit score could simply mean that you haven’t had time to build credit, or you’re still working to get back on track after a hardship earlier in life. It’s good to know that there are always ways to raise your score. 

However, if you’d still like to purchase a home now, you may need an FHA Loan which is friendly to those with lower credit since the down payment is 3.5%, rather than the usual 5%. 

How to Improve Your Credit for a Better Mortgage Rate

There are always ways to improve your credit, it just takes a bit of knowledge and work to see significant results. A few surefire ways to improve your credit include: 

Pay your bills on time, and if you haven’t, pay them as soon as possible. Late charges hurt a credit score badly, and on-time payments are the surest way to get that number back up. 

Also, pay your down balances, and once that balance is paid, keep the account open. A longer credit history is a good thing for lenders to see.

We know how stressful a home buying experience can be, so be patient. Look around for the best rates, don’t be afraid to ask questions, and know that a poor credit score is not the end of the world. It’s important that you know which mortgage rates are fair for your credit score and the current market condition. If you’re not sure where to find that information, our team at BlueWest Properties can help! Our real estate experts look at mortgage rates every day and can help you determine what is fair, and what might be a little high. We’re here to guide you through each step in the homebuying process. Give us a call or contact us online for more information.

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Contact BlueWest Properties to learn more!

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Jeralin-AdminDoes My Credit Score Determine My Mortgage Rate?