Americans are minding their credit scores relatively well these days, as the average FICO score is now 714 – an all-time high.

There’s very good reason to ensure your score is as high as possible on the scale from 300 to 850, as your credit score directly affects many aspects of your financial life, and just about every loan you take out.

That’s incredibly important right now since mortgage rates are about double what they were a couple of years ago (although pretty average historically), causing home buyers and those looking to refinance to pay much more for the same loan.

So, one way to save and make sure you get the best mortgage rate possible is to boost your credit score.

In fact, according to recent data from the Federal Reserve Bank of New York, the median credit score for those applying for a mortgage is 768. And the average credit score for first-time buyers is now 746, according to recent data from FannieMae.

In general, the lower your credit score, the higher your mortgage rate will be. And yet only 25% of Americans have a FICO between 740 to 800 (considered excellent).

Let’s take a closer look at some of the other factors that help determine your mortgage rate, and how you can get the absolute best rate (and save the most) on your next home loan.

Factors that help lower your mortgage rate:

  1. Credit Score

You’ll want a FICO score of 740-760 or higher.

Your credit score directly and significantly affects the rate you’ll receive on your next home loan (or if you’ll qualify at all).

And these days, a subprime or even average credit score won’t be enough to get the best possible rate on that next mortgage.

Instead, focus on pushing your score to the Exceptional range of 740-760.

And while a 760, 780, or 850 score certainly may help you marginally, most lenders and banks offer their best rates and programs to borrowers with scores of at least 740 to 760.

What other factors go into getting the best rate on your next home loan?

  1. Down Payment

As a general rule, the bigger the down payment, the less risk to the bank or lender and therefore the better rate you’ll receive. So, a down payment of at least 25% will give you access to the best rate possible (among other factors).

  1. Debt-to-Income Ratio

Your income and debt are a huge determiner in qualifying for certain loan programs or rates. A high income is great, but it only serves you well in relation to a low debt level, which is measured by your debt-to-income ratio (DTI). A DTI of below 30% is required to get the best rate on your refinance or home purchase.

  1. Paying Points

Many home buyers or homeowners are buying down their mortgage rates these days by paying points, or a percentage of the loan amount. Talk to your mortgage broker or lender about the possibility of buying down your rate with points, the timing, and if it makes financial sense. But it is an option to access the best possible mortgage rate.

How much of a difference will a great credit score make on your mortgage?

According to analysis of FICO and Bankrate data, this is the average interest rate for each FICO score bracket in the first quarter of 2023:

(Based on a $300,000 loan amortized over 30 years.)

620-639: 8%
640-659: 7.45%
660-679: 7.02%
680-699: 6.81%
700-759: 6.63%
760-850: 6.41%

Of course, mortgage rates go up and down every day, and rates have been a rollercoaster ride so far in 2023. But the takeaway from this is just how much a high credit score will help you when it’s time to buy a home or refinance.

The difference in average payment between that 620-639 bracket compared to the top credit score bracket of 760-850 is $2,201 compared to $1,878, respectively. That’s a BIG difference in monthly payment on the same loan amount!

Total interest paid is what to really focus on.

If we look at the most important financial cost of the loan – total interest paid – we see an even more profound difference.

In fact, in that same scenario, the person with a top-shelf 760-850 FICO will end up paying $376,000 in total interest over the life of the loan.

But the 620-639 credit score borrower will pay a jaw-dropping $492,000 in total interest!

So, in this case, having an excellent credit score will save you more than $120,000 in total!


Contact Blue Water Credit when you’re looking for some credit score help or well in advance of purchasing a home or applying for a mortgage – you’ll be glad you did when we save you a bundle in the long run!