As mortgage rates continue to tick up, potential homebuyers looking to reduce their monthly payments don’t have too many avenues to save.
But improving one’s credit score could make a difference – not only to get approved for a loan but also to save money in the long term.
Increasing one’s score by 20 points can save a borrower more than $20,000 in interest over the life of a 30-year conventional loan while raising it by 100 points can mean a savings of more than $40,000, according to a new analysis by Credit Karma shared exclusively with USA TODAY.
A credit score is a number between 300 and 850 that shows a consumer’s creditworthiness based on their bill payment history, current debt and other financial information. A high score could mean lower interest rates on a loan as lenders feel more confident that a borrower will repay their future debts.
“We found that a 20-point score increase could be the catalyst for saving thousands of dollars over the life of a mortgage,” says Aniva Hinduja, vice president and general manager for Home/ Mortgage at Credit Karma. “In this market, as mortgage rates remain elevated, prospective buyers should be prioritizing good credit as it can alleviate some of the financial burden that comes with paying interest on their home loan.”
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Although it’s possible to get a mortgage with a low credit score, it comes with higher interest rates and unfavorable terms that could make it difficult to repay.
A 30-year conventional mortgage in the 200,000-250,000 range might on average cost a borrower with a credit score between 680-699, $40,000 more in total interest over the life of their loan than it would a borrower with a credit score between 780-799, according to the study.
Swapna Venugopal Ramaswamy is a housing and economy correspondent for USA TODAY. You can follow her on Twitter @SwapnaVenugopal and sign up for our Daily Money newsletter here.
