A Good Credit Score Could Save $158,400 on Your House. How to Improve Yours

You may not think your credit score is that big of a deal.

But when it comes to the largest purchase you’ll ever make — your home — your credit score is a really, really big deal.

Why is that?

• You’ll need a mortgage to afford that home, so you’ll be borrowing a large amount of money for a long period of time — probably 15 or 30 years.

• Your credit score largely determines what interest rate you’ll pay on your mortgage.

• Over 30 years of making monthly mortgage payments, all of that interest you’re paying really adds up.

In fact, over the course of your home loan, you could end up spending thousands of dollars more than you need to. By making this one move, you could end up saving yourself up to $158,400.

What’s a Good Credit Score?

Your credit score ranges from 300 to 850. It’s like a grade that tells banks and credit card companies how well you manage money and repay debt.

The better your score, the better deal you’ll get on a mortgage, car loan or credit card. Generally speaking, a score of 750 to 850 is considered “excellent,” 700-749 is considered “good,” 650-699 is “fair” and 300-649 is considered “poor.”

Credit Sesame can help you quickly see what your credit score is and how you can improve it — for free. And it could save you up to $158,400 on your mortgage.

Save $12,000 — or nearly $160,000

So, how much can a good credit score save you during the life of a 30-year loan?

We looked at answers from four different online publishers: CNBC, The Motley Fool, Forbes and Entrepreneur. They each wrote about different scenarios. According to their calculations, a homeowner with great credit can save anywhere from $12,000 to nearly $160,000 on a 30-year mortgage, depending on the cost of the house and the exact interest rate.

Here’s what they found:

CNBC: “Suppose you’re looking to buy a home that’s worth $300,000 with a 20% down payment and you get a 30-year, fixed-rate loan of $240,000… An ‘excellent’ credit score of 780 would have earned you a 3.87 percent rate in October {2017}… Before taxes, insurance or homeowners’ association fees, that would mean you’d pay about $1,129 a month. If your score was 100 points lower, at 680, your rate would have been about 4.12 percent, making your monthly payments around $1,163… an extra $34 a month, $408 a year and a whopping $12,240 over the life of your loan.”

The Motley Fool: “Using the current 30-year mortgage rate of 4.14% for persons with excellent credit, this means a likely mortgage rate of 4.39% for those with average credit. A 25-basis-point increase may not sound like much, but over the course of 30 years, assuming the loan wasn’t repaid early, the excellent credit individual or family will pay nearly $16,000 less in interest than someone with good credit on a $300,000 loan.”

Forbes: “According to myFICO, a credit score of 760 will qualify a homebuyer for an interest rate of 3.473% (rates change daily). A credit score of 620, however, qualifies for the higher rate of 5.062%. If we assume a 30-year mortgage of $250,000… total interest paid increases from $152,785 to $236,555, a difference of $83,770 over the life of the loan.”

Entrepreneur: “You work with a mortgage broker to pre-qualify for a $500,000, 30-year fixed home loan. Your credit score is 620, so you get a mortgage loan approved at a 5% interest rate. Your total principal and interest payments equal $966,600. Now let’s say your credit score is 760, so you get a mortgage loan approved at a 3.5 % interest rate.Your total principal and interest payments will equal $808,200. Just by having the better credit score, you could potentially save $158,400 in interest over the course of 30 years!”

How to Boost Your Score

Before you buy a home, you need to find out what your credit score is — and how to raise it.

Here’s a quick and easy way to do that: Credit Sesame.

It’s a free credit-monitoring service where you can see your credit score. It’ll give you a “credit report card” that breaks down exactly what’s on your credit report in layman’s terms, how it affects your score and how to address it.

It has helped people like James Cooper, a motivational speaker who used it to raise his credit score by 277 points, from 524 all the way up to 801. His favorite thing about Credit Sesame is its personalization. It suggested concrete steps, based on his situation, to better manage his credit score.

It’s definitely worth doing before you buy a house.

Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder. He has a 30-year mortgage, oh yes he does.