Credit score

Some mortgage refinance rates are below 3%. What credit score do you need?

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According to experts, lenders consider your credit score to be one of the most important factors they use to determine the interest rate you will qualify for. So even though you may see interest rates for a refinance lower than 3%, that doesn’t mean you’ll qualify for those rates. (Some mortgage refinance rates are around 2.5%; see the lowest fares you could qualify for below, and here).

Simply put, the lower your credit score, the more interest you are likely to pay over the life of your mortgage. Even if you only pay a quarter of a percentage point more than if your credit score were higher, the interest can add up to thousands of dollars. If you have a $500,000 mortgage at 4.5% and your monthly payment is $2,533, refinancing at 4.25% could mean lowering your monthly payment to $2,459, saving you $324 $ per month. (Find the best mortgage refinance rates in your area here.)

So what’s the credit score you need to get the lowest rates?

“Credit scores of 700 and above have an easier time qualifying, with the best terms available to those with credit scores of 740 and above. Although it is possible to refinance with a credit score between 620 and 680, the conditions are not as good,” says Greg McBride, chief financial analyst at Bankrate. Holden Lewis, Real Estate and Mortgage Expert at NerdWallet adds, “Life is easier for refinancers with credit scores of 740 or higher because from the perspective of mortgage lenders, [they’re the] less risky borrowers.

However, as Jacob Channel, senior economic analyst at LendingTree points out, you don’t always need to have these scores: “For other types of loans, such as an FHA loan, a borrower may be approved with a score of credit as low as 580.”

What other factors affect my ability to obtain refinancing?

Of course, it’s important to understand that being approved for a good rate for a refi isn’t just about credit score. Lenders also look at your income and other aspects of your financial profile like your savings, debts and more. “Lenders are generally unlikely to work with someone who has a credit score below 580, although there may be some exceptions depending on the lender and the person requesting the refinance,” Channel explains. Adding a co-signer to the loan can make someone a more attractive candidate, as can saving a lot of money. “Keep in mind that even if aspects of your overall financial profile outside of your credit score are great, you’ll still face an uphill battle to get approved,” Channel says. (See the best mortgage refinance rates you could qualify for here).

How can I increase my credit rating?

If your credit score doesn’t meet the minimum requirements, there are things you can do to get approved for a refinance. “First, you can look for a lender who has less stringent credit requirements. Just because one lender hasn’t approved your refinance doesn’t mean all other lenders will too,” Channel says. To boost your credit score, doing things like making monthly payments on time and paying off debt to lower your credit utilization rate are some of the steps Channel advises taking.

If your score is lower than you would like, don’t despair. “If you make all your payments on time and repay all revolving debts, time will heal the wounds. If you’re close to the threshold, making a large payment on a revolving balance or using something like Experian Boost could get you over the threshold pretty quickly,” McBride says.