How Credit Score Affects Your Mortgage Rate

Without a high credit score, you won’t qualify for the best mortgage rates available, which could mean you’ll end up paying more money over the term of your mortgage. The difference between 3% and 3.25%, for example, can add up, especially if you’re applying for a 30-year fixed-rate mortgage.

Why your credit score matters to lenders

Along with a low debt-to-income ratio and a strong financial history, you’ll need a high credit score for the lowest mortgage rates. Why?

You’d probably hesitate to lend money to a friend who usually takes forever to pay you back — or doesn’t pay you back at all. Lenders feel the same way about mortgages. They want to lend to people who have a record of on-time payments to creditors.

Lenders rely on credit scores as an indication that a borrower will meet obligations. A higher credit score, experts say, reassures lenders that they will be paid back.

Your credit score is calculated most often with the FICO scoring model and is derived from the information on your credit reports, which are compiled by credit reporting companies. Your reports include a history of your payment habits with borrowed money.

» MORE: Check your credit score for free

Your credit score is “one of the most important parts to qualify, but it is a part,” says Michelle Chmelar, vice president of mortgage lending with Guaranteed Rate in New York. “You have to have the whole package: income, sufficient assets and credit.”