As mortgage rates continue to rise, potential buyers looking to lower their monthly payments don’t have much room to save.
But improving your credit score could make a difference, not only to getting a loan approval, but also to saving money in the long run.
Raising their score by 20 points can save a borrower over $20,000 in interest over the life of a conventional 30-year loan, while raising it by 100 points can mean savings of over $40,000. $, according to new Credit Karma analysis shared exclusively with USA TODAY.
A credit score is a number between 300 and 850 that indicates 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 future debts.
“We found that a 20-point increase in score could be the catalyst for savings of thousands of dollars over the life of a mortgage,” says Aniva Hinduja, vice president and general manager of Home/Mortgage at Credit Karma. “In this market, with mortgage rates remaining high, potential buyers should prioritize good credit, as it can ease some of the financial burden of paying interest on their home loan.”
Learn more: The best personal loans
HOUSING LEXICON: New to the housing market? 15+ real estate terms to know, from FICO to escrow
CREDIT RATING :How This Single Mom Boosted Her Credit Rating Despite Losing Her Job
Although it is possible to get a mortgage with a low credit rating, it comes with higher interest rates and unfavorable terms that could make repayment difficult.
A conventional 30-year mortgage in the 200,000 to 250,000 range could cost the average borrower with a credit score between 680 and 699 $40,000 more in total interest over the life of their loan than a borrower with a credit score between 780 and 799, according to the study.
Swapna Venugopal Ramaswamy is housing and economics correspondent for USA TODAY. You can follow her on Twitter @SwapnaVenugopal and sign up for our Daily Money newsletter here.