Credit scores have a significant impact on mortgage rates in California. Borrowers with credit scores of 740 or higher are likely to receive the lowest mortgage rates.
Those with lower scores may face higher interest rates, affecting their monthly payments and the total interest paid over the life of the mortgage.
In the first two sentences of an application, scores give lenders a quick risk assessment.
High scores mean reliable payment history. Low scores indicate missed payments and other negatives making the borrower risky.
Lenders use FICO scores from 300-850 provided by credit bureaus. Over 740 is excellent credit in California, 620-739 is good, and under 620 is poor.
Excellent Credit Unlocks the Lowest Rates
Borrowers in California with FICO credit scores of 740 or higher have access to the most favorable mortgage rates.
According to data compiled by NerdWallet, applicants with excellent credit taking out a 30-year fixed-rate mortgage can expect average interest rates of around 6.41% as of November 2023.
In comparison, those with poor credit – FICO scores below 620 – may see 7.99% or higher rates on the same loan.
Over the lifetime of the mortgage, the higher interest rate adds tens of thousands of dollars in extra interest payments. Excellent credit saves money.
For example, on a $300,000 mortgage loan, the monthly principal and interest payment would be around $2,010 at an interest rate of 6.41% for excellent credit.
The monthly cost for a borrower with poor credit at 7.99% interest jumps to $2,430 on the same size mortgage – a difference of $420 monthly.
How Mortgage Rates Differ by Credit Levels
In November 2023, current conforming mortgage rates in California for borrowers with the best credit land at approximately:
- 7.73% for a 30-year fixed-rate mortgage
- 6.94% for a 15-year fixed-rate mortgage
Average mortgage rates for borrowers with poor credit are:
- 9.47% on a 30-year fixed mortgage
- 8.68% on a 15-year fixed mortgage
Maintaining a high credit score saves on interest costs over the lifetime of a mortgage loan. Improving your credit score before applying for a mortgage can lower your interest rate.
National Perspective on Credit Score and Interest Rates
Zooming out beyond California, credit scores impact mortgage interest rates across the United States.
According to data compiled by LendingTree, here are the average mortgage rates by credit score levels on a 30-year fixed mortgage of $300,000:
- 760-850 – 6.213% APR
- 700-759 – 6.611% APR
- 680-699 – 6.772% APR
- 660-679 – 7.064% APR
- 640-659 – 7.449% APR
- 620-639 – 7.884% APR
- 580-619 – 8.534% APR
The average interest rate offered to borrowers with excellent credit scores of 760-850 is 6.213%.
But for those with poor credit between 580-619, the average rate jumps to 8.534% – more than 270 basis points higher.
This data indicates that working to improve your credit score before applying for a mortgage can translate into significant interest savings over the life of your home loan.
Even an increase of a few dozen points can drop your rate.
Steps to Improve Your Credit & Lower Your Rate
If time is on your side before applying for a mortgage, take steps to boost your credit score and qualify for better loan terms. Consider these tips:
- Pay all bills on time to build a strong payment history
- Pay down balances on credit cards and other revolving debt
- Limit new credit inquiries by not opening too many new accounts
- Check credit reports for errors and dispute any inaccuracies
- Sign up for credit monitoring to stay on top of changes to your credit
You can improve your credit score in as little as a few months with diligent work. The savings over the 30-year mortgage term make it time well spent.
Conclusion: Your Credit Matters on Mortgages
Credit scores influence the mortgage rates lenders offer borrowers in California and nationwide.
Maintaining excellent credit unlocks the lowest interest rates, saving thousands of dollars in interest costs over the loan’s lifetime. Improving your credit can lower your rate.
Review your credit reports and take steps to boost your scores before you apply for a mortgage.
Contact Granite West Funding at (559) 540-2275 to explore your home financing options. With an informed credit strategy, you can maximize savings on your home loan.
