Key Findings
Raising your credit score from 630 to 670 can save you $3,000 when buying a new car.
Raising your credit score from your current range to the next could save you an average of $23,000 over the life of a mortgage.
The same credit score can result in different interest rates depending on where you live – a credit score of 715 gets an annual percentage rate (APR) of 5.05% for a home loan in Connecticut, but 7% in North Carolina.
How Can Your Credit Score Save You Money?
When you apply for a loan, lenders use your credit score to determine how risky it is to loan you money — or how likely you are to repay it on time, according to the Consumer Financial Protection Bureau (CFPB). Your credit score is based on your credit report, which reflects your long-term credit use.
If you have a history of making loan payments on time and avoid taking on too much debt, you’re likely to have a high credit score. But if you regularly miss payments and max out your credit cards, you’re more likely to have a lower credit score.
A higher credit score means less risk to lenders, so they’re more likely to offer you a lower interest rate on loans for homes and cars. That’s why it’s worth learning how to improve your credit score — even a slight difference in score can be the difference between hundreds or thousands of dollars of interest.
How Much Can Your Credit Score Save You on a Car Loan?
To figure out how much improving your credit score can save you on a new car purchase, we used Experian’s range classification system for credit scores for auto loans. Experian’s credit tiers are as follows:
- 800+: Exceptional
- 799-740: Very Good
- 739-670: Good
- 669-580: Fair
- 579 or below: Poor
Moving from one tier to another can have a major impact on the interest rates you receive. For example, we found that raising your credit score by just 40 points, from 630 (fair) to 670 (good), could lower your monthly car payments by $50. That may not seem like much, but it comes out to saving $3,000 over the life of your car loan.
To calculate the savings, we used Experian reports for the average amount financed for a new car ($40,366) and used car ($26,685) in 2023, and the average interest rate offered in each credit range. Using the average interest rate for each credit range, we calculated interest on average new car loans and used car loans over a 60-month period.
To put it into further perspective: A person with the lowest credit score and a person with the highest credit score could purchase the exact same car, but the person with the low credit score may pay roughly $10,000 more over the life of their loan.
The biggest incremental savings are for used car purchasers who raise their credit score from 550 to 650. The 100-point increase lowers the interest rate from 18.89% to 14.12%, saving $4,082 over 60 months.
How Much Can Your Credit Score Save You on Your Mortgage?
Mortgage loan rates work a little differently from auto loan rates because of the higher dollar amount and longer time frame to pay them off. But improving your credit score can still save you significant money on your mortgage.
To break down how your credit score can make a difference with mortgage rates, we used a $300,000, 30-year fixed-rate home loan as an example.
If your credit score is around the national average of 715, you’re estimated to qualify for the loan with an annual percentage rate (APR) of 7%*, according to FICO. With this rate, you’d be locked into a monthly payment of $1,995, leading to a total of $718,200 over 30 years.
However, if you managed to raise your credit score 45 points (putting you into the “very good” range), your estimated APR lowers to 6.77%. In turn, your monthly payment drops to $1,951 and your total home cost falls to $702,360, saving you $15,840 in the long run.
Mortgage rates vary by state, but on average, raising your credit score into the next range of scores lowers your APR by an average of 0.32% and saves $23,328, our analysis found.
Do you save more based on where you live?
Mortgage rates can vary significantly by state. We calculated mortgage payments by credit range for all 50 states and the District of Columbia to see where you can save the most by improving your credit score.
Connecticut offers the best mortgage rates. A borrower with the national average 715 credit score qualified for an APR of 5.05% when buying a home in Connecticut, according to FICO data at the time of our analysis, which means paying a total of $583,200 over 30 years for a $300,000 loan.
North Carolina offered the worst mortgage rates; a borrower with the same credit score would qualify for an APR of 7% here. That means the same borrower, with the same loan amount, would pay a total of $718,920 to buy a home in North Carolina — a $135,720 difference from Connecticut.
North Carolina has higher interest rates in general. The best APR in North Carolina, available to those with a credit score in the 760 to 850 range, was 6.77% in our analysis. For comparison, the worst APR in Connecticut was 6.08%, which means that borrowing with bad credit is far easier in Connecticut than North Carolina.
The table below compares the interest rates in different states for borrowers with the national average credit score of 715. Data is accurate at the time of our analysis. Mortgage rates can and do change from day to day.
Tips for raising your credit score
If you live in a state with higher APRs (like North Carolina), it’s especially important to raise your credit score and get the lowest possible APR to save money on your mortgage.
If that’s you, or the findings of this report simply have you wondering how to improve your credit score, follow these seven tips, based on advice from the CFPB:
- Read your credit report. Your credit report explains exactly what is affecting your credit score so you’ll know what’s working and what isn’t. You can get a free credit report at AnnualCreditReport.com.
- Pay your bills on time. Late and missed bill payments damage your credit score and can quickly pile up if left unchecked. Set your bills to automatically draw from your checking account so you don’t forget.
- Set up payment plans for outstanding debts. If you have past due debts, you may be able to set up a payment plan with your creditors, which can help show lenders you’re actively working to repay them.
- Don’t apply for tons of new credit cards. Each time you apply for credit, it can cause a temporary drop in your score.
- Consider keeping old accounts. Keeping older accounts open can be beneficial; the length of your credit history affects your score.
- Keep your credit utilization low. Aim to keep your credit card balances low compared to your credit limits.
- Use different types of credit. Having a diverse mix of credit types (credit cards, loans, mortgage, etc), can increase your credit score.
Average Mortgages by Credit Score by State (Full Data)
Methodology
For this report, the MarketWatch Guides research team investigated the interest rates on car loans and home loans based on credit scores. To accurately capture the differing nature of how lenders assess credit health across various loan types, we used different credit range models for home loans and auto loans.
Auto loan credit ranges, interest rates and average loan amounts came from Experian’s State of the Automotive Finance Market Q4 2023 Report. Mortgage rates by credit score and by state came from myFICO.com. Mortgage rates were calculated for a 30-year fixed loan of $300,000 and were collected on April 3, 2024. National and state average credit scores came from Experian’s 2023 Consumer Credit Review.
- Savings and money market accounts (35% of total score): The best scores go to banks, loans and fintech companies with high interest rates and low or no fees or minimum opening deposits.
- Checking accounts (30% of total score): High marks are given to those with multiple accounts and minimal fees, plus benefits such as reward programs and mobile check deposit.
- Certificates of deposit (20% of total score): Top-rated financial institutions have low or no minimum opening deposits, as well as a variety of term options and specialty CDs for flexibility.
- Banking experience and access (15% of total score): Providers that excel in this category have large branch and ATM networks and multiple checking and savings accounts, and they earn more points for offering CDs and money market accounts.
*Mortgage rates are accurate as of the date of publication.
If you have feedback or questions about this article, please email the MarketWatch Guides team at editors@marketwatchguides.