A borrower with a fair credit score would pay an additional $103,626 in interest on a 30-year loan.

Elevated home prices and rising interest rates are feeding into housing affordability woes for potential buyers – especially those with lower credit scores – reported Zillow, Seattle. A Zillow analysis found buyers with “fair” credit could be paying up to $288 more on their monthly mortgage payment than those with “excellent” credit. The firm examined credit scores against current mortgage rates and found that such monthly cost increases are exacerbated for millions of Americans with low credit scores or less than perfect credit histories. Zillow noted a borrower with an excellent credit score–between 760 and 850–can qualify for a 30-year fixed-rate mortgage with a 5.09% interest rate. For the same loan, a similar borrower with a fair credit score between 620 and 639 qualifies for a 6.68% rate, a $288 difference monthly and nearly $103,626 in interest over the life of a 30-year loan, based on the $354,165 current price of a typical U.S. home.

“When you are thinking about buying a home, the best first step you can take is to fully understand your financial picture, what you can afford and your outstanding debts or obligations,” said Libby Cooper, Zillow Vice President. “If you find you have low credit, take realistic steps to improve your credit score by doing things like disputing possible report errors and paying down as much debt as possible. This could increase the amount of home loan you qualify for.” Zillow found a direct correlation between credit security–having a strong credit history and structural access to credit offerings–and higher homeownership rates. “The homeownership rate is lower in counties that are more credit insecure, meaning they are home to high numbers of residents with poor or no credit history,” the report said.

Source: Zillow