May 20th, 2018 6:37 AM by Jackie A. Graves
Thinking about buying a house? Before you do, you might want
to work on boosting your credit score.
A new study by
real estate research site Zillow found that a borrower with a fair credit
score (640-679) would pay about $720 more per year in mortgage costs for the
same home than a borrower with an excellent score of above 760.
The analysis found that nationally, a borrower with an
excellent credit score could get a 30-year fixed-rate mortgage of 4.5% for a
median priced U.S. home of $213,100 with a 20% down payment. The borrower with
fair credit would qualify for a 5.1% rate, according to Zillow’s analysis of
quotes offered to borrowers on Zillow Mortgages between March 25-May 5.
Over the lifetime of that 30-year mortgage, the fair credit
borrower would pay $21,000 more for the typical home.
"When you buy a home, your financial history determines
your financial future," said Zillow senior economist Aaron Terrazas in a
The penalty for having a lower credit score grows for
homebuyers in more expensive markets.
For example, a buyer with a fair credit score in San Jose,
where the median home value is $1.3 million, would wind up paying about
$129,000 more over the course of the 30-year loan than a borrower with an
excellent score, according to Zillow's analysis.
The study does note that "these estimates likely
represent the maximum impact of fair versus excellent credit, because credit
scores aren’t set in stone." Borrowers can also secure lower rates with a
larger down payment and few buyers pay out the full 30-year term on a loan.
"Homeowners do have the option to refinance their loan
if their credit improves, but as mortgage rates rise this may be a less
attractive option," Terraza said.
How to boost your credit score
There are ways to raise your credit score in a relatively
The personal finance website Nerd Wallet recommends these 3 steps
to improving your credit score in a short time:
1. Fix errors on your credit reports
2. Stay well below your credit limit
3. Deal with past-due bills
By addressing these issues it’s possible for a borrower with
a low credit score to boost it by as much as 100 points, according to
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