Here’s How Much Your Credit Score Impacts Your Mortgage and Auto Loan Rates

When you apply for a new loan, the most influential factor in determining your interest rate is your credit and, more specifically, your credit scores. Other factors certainly matter during your loan’s underwriting, such as your income and employment history, but the importance of your credit scores cannot be overstated when a lender decides which interest rate to set for your newly opened account.

The difference your credit scores can make in the interest rate you’re charged and, ultimately, the overall cost of your loan, can be quite remarkable. Take a look at the examples below to see just how much a bad credit score could be costing you, and how much you could save if you were to work on improving your credit for future applications.

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In this article

    620 Credit Score: Not So Good

    Meet John. John is a nice, responsible guy who tries very hard to properly manage his credit and finances. Unfortunately, John has just gone through a nasty divorce and his once-stellar credit scores have been dragged through the mud. He needs to purchase both a car and a home, but sadly the damage to his credit scores is going to cause him to pay significantly more than he would have paid before his credit problems. Let’s take a look.


    Thankfully, though John’s scores were borderline, he was still able to at least qualify for a new mortgage. The rate he received on his 30-year fixed loan, however, was not the best. With a credit score of 620, John was offered an interest rate of 4.77% on his $200,000 mortgage. Here is a breakdown of how much this loan will cost him over time:

    • Loan amount: $200,000
    • Credit score: 620
    • Monthly payment: $1,046
    • Total interest paid: $176,455

    Auto Loan

    John also needs to purchase a new vehicle, and his credit problems will cost him again. He was offered an interest rate of 9.014% on a 60-month, $25,000 new auto loan. Here is a breakdown of his overall auto loan cost:

    • Loan amount: $25,000
    • Credit score: 620
    • Monthly payment: $577
    • Total interest paid: $9,615

    720 Credit Score: Much Better

    John, of course, was not very happy with his poor credit scores and high interest rates. So, he decided to work hard to raise his credit score back to where it used to be. After a couple of years of patiently and consistently rebuilding his credit, John has finally seen his scores rise back up to a much more respectable level of 720. He’s decided to refinance his mortgage and is trading in his vehicle for a newer model. Here’s a look at what these new loans will cost him now that he has worked to improve his credit.


    With his new credit score of 720, John is able to qualify for a much more attractive interest rate of 3.403% on his $200,000 mortgage. That 100-point increase in his credit score will save him more than $150 a month and more than $57,000 over the life of the loan. Here’s a complete breakdown of how much he’ll save on his new mortgage with his improved credit scores:

    • Loan amount: $200,000
    • Credit score: 720
    • Monthly payment: $887
    • Total interest paid: $119,246
    • Money saved monthly: $159
    • Money saved overall: $57,209

    Auto Loan

    John also traded in his vehicle on a newer model. Once again he took out a 60-month, $25,000 new auto loan. However, this time he was offered an interest rate of 3.276%. Here’s a breakdown of the cost and savings on his new car loan.

    • Loan amount: $25,000
    • Credit score: 720
    • Monthly payment: $452
    • Total interest paid: $2,137
    • Money saved monthly: $125
    • Money saved overall: $7,478

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    John Ulzheimer

    Contributing Writer

    John Ulzheimer is an expert on credit reporting, credit scoring, and identity theft. The author of four books on the subject, Ulzheimer has been featured thousands of times over the past decade in media outlets including the Wall Street Journal, NBC Nightly News, The Los Angeles Times, CNBC, and countless others. With professional experience at both Equifax and FICO, Ulzheimer is the only credit expert who actually comes from the credit industry. He has been an expert witness in over 230 credit related lawsuits and has been qualified to testify in both federal and state courts on the topic of consumer credit.