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As mortgage rates spike, credit scores are more crucial than ever

While consumers are feeling the squeeze, the key to a solid mortgage rate is within your control.

Source: Getty Images

While mortgage rates fell to record lows during the pandemic, they've been soaring back, officially hitting 5.27% last week for the first time in over a decade.

The jump has been mind-boggling to many as just six months ago, 30-year mortgage rates hovered just above 3%. The sudden uptick is, however, not all that shocking — it's what the Federal Reserve had hoped for in terms of quelling an increase in inflation. That said, rising interest rates combined with an out-of-control housing market has caused some Americans to simply walk away from the idea of buying a home, at least until things start to cool off.

The good news is, while economic forces may be out of our hands, one of the most important parts of qualifying for a mortgage — your credit scoreis still largely within your control. Regardless of where interest rates are now, maintaining an excellent credit score can end up saving you hundreds of thousands of dollars in interest over the course of a 30-year mortgage.

Below, Select details the reasons behind the recent surge in mortgage rates and how your credit score can help you snag the lowest interest rate possible — and help save you money along the way.

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Mortgage rates just hit a 12-year high

One of the most important factors future homeowners should consider, besides the purchase price of their home, is the interest rate they'll receive on their mortgage. While the pandemic provided record-low rates, that trend has now ended.

On April 14, 2022, 30-year mortgage rates officially climbed over 5%, and on May 5, the average interest rate hit 5.27% according to the St. Louis Federal Reserve Bank, meaning the cost of borrowing money to purchase a home is going up for all Americans.

For example, if you were to purchase a $300,000 home with a 10% down-payment ($30,000) and receive a 3% interest rate on your mortgage, you would have paid $139,799.12 in interest over 30 years. But if your rate is 5.27%, you'll pay $267,946.70 in interest — nearly double the total interest of the 3% mortgage.

While those numbers may seem discouraging, they don't automatically mean it's not worth becoming a homeowner right now.

"Increasing rates doesn't necessarily mean it's a bad time to buy a home," Robert Heck, vice president of mortgages at Morty tells Select. "[Mortgage rates] have yet to rise to a level at which they could send demand and affordability into a steep downward spiral, even if they have impacted affordability. This dynamic has been aided by limited inventory and persistent demand for what is available."

According to Heck, rushing to buy a home because of interest rates or other economic factors isn't a good idea. "Buyers should be laser-focused on planning for all the expenses that go into owning a home right now," he says.

In addition to paying attention to costs such as maintenance, taxes and insurance, potential homebuyers should focus on grabbing the best mortgage they can find with the lowest interest rate possible. To secure that low rate, much of the process comes down to one central factor: your credit score.

How consumers can secure a low interest rate

Your first step in shopping for a new home should be starting the pre-qualification process, which means contacting lenders to see if they'll approve you for a loan, and lenders checking your credit score to see if you qualify for it.

Before you begin applying for a mortgage, check your credit score to get a sense of the kinds of interest rates you'll qualify for. If your credit score is less than perfect, it's also a good way to find out what could be dragging it down, whether it's credit card or student debt, late payments or any other factors. Note that every single point you manage to increase on your credit score can make a significant difference in how much interest you'll have to pay on your mortgage, potentially saving you thousands in the long run.

For instance, if you take the example above and buy a $300,000 home with a 10% down-payment and you have a 5.27% interest rate on your loan, your total interest paid over 30 years would be $267,946.70. With a slightly higher interest rate of 5.5%, you would pay $281,890.91 over 30 years, reflecting a difference of nearly $14,000.

If you didn't have a great credit score and were only able to receive the 5.5% rate, you'd end up paying $14,000 more over 30 years, which amounts to an extra $38.88 per month. While that is a relatively nominal difference, if you had a higher credit score you would have received a better interest rate, and each point shaved off your rate is money back in your pocket rather than going to your lender.

Getting a good interest rate and terms on your mortgage not only has to do with your credit score, but also with your lender. Select ranked the best mortgage lenders and found that Rocket Mortgage, Chase Bank, Ally Bank, PNC Bank, SoFi were among the top, based on the types of loans offered, customer support and minimum down payment amount, among other factors.

How to raise your credit score quickly

If you're looking to increase your credit score in a hurry, here are a few ideas to help you get started:

Ask for a credit line increase

If you already have credit cards, that means you already have an assigned credit line indicating how much you can spend. This is called credit utilization and accounts for 35% of your overall credit score.

For example, if you have $25,000 in an overall credit line across three credit cards and are currently only using $3,000 of it, that means your utilization rate is 12%. If you were to call the credit card issuers and raise your overall credit line to $40,000, your utilization rate would drop to 7%.

The lower your credit utilization is, the better off your credit score will be. There are two easy ways to secure a higher credit line — either by updating your income if you've recently received a salary increase or by simply calling your credit card issuer and asking for one.

Check your credit report for errors or evidence of paid off accounts

There's always a small chance your credit report might contain errors, so it's a good idea to check it every so often. Roughly 25% of Americans have noticed some sort of error on their credit reports, typically in the form of fraudulent or duplicated accounts — should you come across anything questionable, contact the credit bureau you're viewing it through to correct the issue as soon as possible. If you happen to have any accounts that have gone to collections and have since been paid off, such as medical debt, you can also ask for those accounts to be removed from your credit report.

You can monitor your credit with a free credit monitoring service, like Experian or Chase Credit Journey, which will help you understand your credit score and figure out how to raise it as needed.

Experian Dark Web Scan + Credit Monitoring

On Experian's secure site
  • Cost


  • Credit bureaus monitored


  • Credit scoring model used


  • Dark web scan

    Yes, one-time only

  • Identity insurance


Terms apply.

Chase Credit Journey

  • Cost


  • Credit bureaus monitored


  • Credit scoring model used


  • Dark web scan


  • Identity theft insurance

    Yes, up to $1 million

Terms apply.

Also, consider using a service like Experian Boost™, which helps you get credit for on-time utility, telecom and Netflix® payments. The service is free to sign up for and the average FICO® Score boost ends up being about 13 points.*

Experian Boost™

On Experian's secure site
  • Cost


  • Average credit score increase

    13 points, though results vary

  • Credit report affected


  • Credit scoring model used

    FICO® Score

Results will vary. See website for details.

How to sign up for Experian Boost:

  1. Connect the bank account(s) you use to pay your bills
  2. Choose and verify the positive payment data you want added to your Experian credit file
  3. Receive an updated FICO® Score

Learn more about eligible payments and how Experian Boost works.

Become an authorized user on someone else's credit card

If you have a trusted friend or family member who pays their bills on time, it could be fruitful to have them add you as an authorized user. By doing so, you'll end up getting "credit" and it will reflect positively on you whenever they pay their credit card bills on time. For most credit cards, this process is completely free and only takes a few minutes to complete.

Bottom line

Your credit score is one of your greatest allies when it comes to purchasing a new home. The higher your credit score is, the more likely you are to be pre-approved for a mortgage by multiple lenders, at which point you can go ahead and pick the one with the lowest possible rate — having multiple mortgage lenders vying for your business can potentially end up saving you thousands of dollars.

Catch up on Select's in-depth coverage of personal financetech and toolswellness and more, and follow us on FacebookInstagram and Twitter to stay up to date.

*Results may vary. Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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FICO® Basic, Advanced and Premier
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Up to $1 million identity theft insurance plus, dark web scans for Advanced and Premier plans