How does a higher credit score impact mortgage interest rates?

A higher credit score positively affects mortgage interest rates by typically resulting in lower interest rates being offered to borrowers. Lenders use the credit score as a key indicator of a borrower's creditworthiness. A higher score suggests to lenders that the borrower is likely to make their payments on time, which reduces the perceived risk for the lender. As a reward for this lower risk, lenders often provide better loan terms, including lower interest rates.

This dynamic is crucial because it influences not only the affordability of the mortgage but also the overall cost of borrowing over the life of the loan. Borrowers with high credit scores can save significantly on interest payments, making homeownership more accessible and financially manageable.

In contrast, lower credit scores can lead to higher interest rates as lenders seek to offset the increased risk associated with lending to those borrowers. Therefore, it’s essential for prospective borrowers to understand the importance of maintaining a healthy credit score in the context of securing a mortgage.