Why Your Credit Score Matters More Than Ever for Mortgage Rates

When mortgage lenders review your credit score, they’re looking to get an idea of how likely you are to make your payments. This is particularly crucial during periods of economic uncertainty or fluctuation, as loan defaults tend to increase. If you have an excellent or good score (670 and above), this signals to lenders that you are a reliable borrower who is likely to pay back your loan, even in times of broader market volatility.

Mortgage rates rise and fall in response to broader economic forces. When the economy is strong—characterized by low unemployment, rising wages, and active consumer spending—demand for borrowing increases. At the same time, the Federal Reserve may raise its benchmark interest rate to keep inflation in check. These factors push mortgage rates upward.

In weaker economic periods, demand slows, and the Fed often lowers rates to stimulate borrowing and spending, which typically leads to lower mortgage rates. Because mortgage lenders price loans based on factors like inflation expectations, bond market performance, and overall economic stability, rates naturally shift as the economy changes.

While you can’t control the economic conditions driving mortgage rates, you can influence your credit score—one of the most powerful tools for navigating an unfavorable rate environment. In high-rate environments, lenders tighten risk standards, which means borrowers with strong credit are rewarded with meaningfully lower interest rates compared to those with weaker profiles. In other words, even when mortgage rates are generally elevated, strong credit helps ensure you’re not paying more than you need to.

Even a small improvement in your credit score can help you secure a lower rate and save thousands of dollars in interest over the life of your loan. You’ll have more cash on hand to renovate your home, save for retirement, or tackle other financial goals.

Since your home is likely one of your largest investments, even small differences in your rate (and credit score) can impact your long-term costs.

Consider this simplified example:

• Loan amount: $500,000
• Loan term: 30-year fixed mortgage

Mary, a successful attorney, has a 740 credit score and qualifies for a 6.25% interest rate. Her estimated monthly principal and interest payment is about $3,080. Tom, an accomplished business owner with a 660 credit score, qualifies for a 7.25% rate instead. His monthly payment rises to roughly $3,410.

That 1% difference increases Tom’s payment by about $330 per month—nearly $4,000 per year. Over the full 30-year term, he would pay significantly more in interest. If Tom also puts down less than 20%, he may face higher private mortgage insurance (PMI) costs, further widening the gap.

Despite similar incomes, Mary’s stronger credit profile translates into a meaningfully lower cost of homeownership—and greater financial flexibility after closing.

For many borrowers, credit challenges aren’t driven by missed payments, but by fragmented, high-interest debt that inflates credit utilization. This is where debt consolidation can play a strategic role.

By using a BHG personal loan to pay off multiple revolving balances, borrowers often see rapid improvements in utilization, payment consistency, and overall credit profile.

That improved credit score can then be leveraged when applying for a mortgage—potentially unlocking better rates, lower payments, and higher approval amounts.

Rather than viewing debt consolidation as a short-term fix, high-income borrowers often use it as a stepping stone toward larger financial goals—like homeownership, refinancing, or upgrading to a more competitive mortgage product.

By taking the time to improve your credit score (even if it’s already in good shape), you could land a lower mortgage rate and reduce your long-term borrowing costs. Here are several tips to steer you in the right direction:

Pay down high-interest balances

Credit utilization accounts for nearly 30% of your credit score. Keeping balances below 30% of available credit—and ideally under 10%—can significantly improve your score. Paying down high-interest revolving debt is one of the fastest ways to achieve this.

Avoid opening new credit lines too close to applying

If you take on a new credit card, car loan, or personal loan right before you apply for a mortgage, your credit score will temporarily go down by a few points due to the hard inquiry. That’s why you should refrain from new credit accounts for at least three to six months before you begin the mortgage process.

Correct errors on your credit report

Even small mistakes on your credit report can hinder your credit score and, in turn, increase your mortgage rate. Visit AnnualCreditReport.com to pull free copies of your reports from the three major credit bureaus. Then, review each report carefully and look for any errors or inaccuracies. If you find one, file a dispute with the appropriate bureau so they can resolve it.

Most experts recommend you focus on your credit about six to 12 months before you’re ready to apply for a mortgage. During this time, pay down outstanding debts, correct credit report errors, and strengthen your credit profile to set yourself up for the best rates.

While it might be tempting to put this off, especially if you’re a busy professional with a lot on your plate, early preparation is vital in today’s market. A higher credit score can result in a competitive rate and thousands of dollars in savings over the life of your loan.

Thanks to today’s unpredictable mortgage market, your credit holds more weight than ever before. A strong credit score goes beyond a mortgage approval. It directly impacts your interest rate, monthly payment, and the long-term cost of homeownership.

By being proactive and taking steps to improve your credit, you’ll be more likely to secure a competitive rate and enjoy a financially secure future.

If you’re interested in pursuing a BHG debt consolidation loan to prepare for your mortgage application, check your rate today, with no impact to your credit¹.

Looking for some guidance? Our U.S.-based loan team is here to help customize a debt consolidation personal loan for your unique situation and goals.