Credit Scores Affect Your Interest Rate

Many people are not aware how their credit score can affect their interest rate on a mortgage. The minimum credit score to qualify for a mortgage is 640 (although some programs will allow a 620 score). Scores around 640 will typically pay the highest interest rate, with the rate dropping incrementally about every 20 points your score improves.

For example, on a $350k loan, the difference in rate between a 680 credit score and a 780 credit score is between one-quarter to one-half percent. That translates into a savings of $60-$120 on your monthly payment. Every 20 points of improvement in your score (700, 720, 740, etc.) the rate will be incrementally lower. Thus, even slight improvements in your score (i.e. going from 738 to 741) will give you a slightly lower rate.

Hopefully this example demonstrates the importance of stewarding your credit score so when the time comes to purchase your first home, or your next home, you get the best rate possible. There are many free mobile apps that can assist with monitoring your credit. To get more information about these, check out the resources listed here.