That's because a very good credit score can save home buyers tens of thousands of dollars over the life of their mortgage, according to a recent report from online financial services marketplace LendingTree. That's not chump change.
of $234,437, which is the average size of those loans, according to the report. Those savings are the price of a decent new car.
"If you have a higher credit score, it means statistically you’re more likely to pay your bill on time," she says. But "if you have a lower credit score, lenders are taking a bigger risk that you’re not going to pay your mortgage off or [you'll go into] foreclosure."
Credit score sweet spot
The ideal credit score is from 760 to 780 and up, McFadden says. Anything much below that and lenders are more likely to charge a higher interest rate or pile on more fees to compensate for the risk that the borrower may miss payments.
She recommends that would-be borrowers get their credit reports and resolve any outstanding issues before applying for a loan. They should also pay down or pay off old balances, not open or close any credit cards, and pay their bills on time.
That's not to say every lender will offer rates to those with sterling credit, says Don Frommeyer, a mortgage loan originator at Marine Bank in Indianapolis. But some will and others will knock off various charges, such as filing and overnight fees.
In addition, many buyers will save substantially less over the life of their loan. That's because after five or six years, many are likely to refinance their loan or move into a new home requiring a new mortgage.
Still, buyers should focus on boosting their credit score.
"You always save money with a higher credit score," Frommeyer says. But "you can pay a fee for a lower credit score."