The Impact of Credit Scores on Your Closing Costs

18 February 2026

When it comes to buying a home, your credit score is more than just a number—it’s a powerful factor that can influence nearly every financial aspect of the process. One critical area many buyers overlook is how their credit score affects closing costs. These fees can add up quickly, and if you're not prepared, they might catch you off guard.

So, how exactly does your credit score impact your closing costs? Let’s break it down.

Understanding Credit Scores and Their Role in Home Buying

Your credit score is essentially a report card for your financial history. It tells lenders how responsible you are with credit and influences their decision on whether they’ll approve your loan. More importantly, it affects the interest rate you’ll get on your mortgage—and in turn, your closing costs.

Lenders use credit scores to gauge risk. A higher score signals that you're a low-risk borrower, which often means better loan terms. On the flip side, a lower score raises red flags, leading lenders to charge higher fees to offset the potential risk.

How Credit Scores Influence Closing Costs

Closing costs are the various fees you pay when finalizing a home purchase. They typically range between 2% and 5% of the home’s purchase price and can include:

- Loan origination fees
- Discount points
- Private mortgage insurance (PMI)
- Home appraisal fees
- Title insurance
- Escrow fees

Your credit score affects several of these costs, and here’s how:

1. Loan Origination Fees

Lenders charge loan origination fees to cover the cost of processing your mortgage. These fees can vary but typically range between 0.5% and 1% of the loan amount.

- If you have a high credit score (740+), lenders may offer lower origination fees since they see you as a low-risk borrower.
- If your credit score is lower (620 or below), lenders might charge higher fees to compensate for the increased risk.

Think of it like car insurance—if you have a clean driving record, you get lower rates. But if you have a history of accidents, expect to pay more.

2. Discount Points and Interest Rates

One way to lower your mortgage interest rate is by purchasing discount points. Each point typically costs 1% of the loan amount and reduces your interest rate.

- A high credit score means you may not need as many discount points to get a competitive rate.
- A low credit score? You might be advised to buy points to bring your rate down to a reasonable level—adding another cost to your closing fees.

3. Private Mortgage Insurance (PMI)

If you're purchasing a home with a down payment of less than 20%, lenders usually require private mortgage insurance (PMI). The lower your credit score, the higher your PMI costs.

- Borrowers with excellent credit (760+) qualify for lower PMI rates.
- If your credit is in the 600s or lower, lenders see you as a higher risk, meaning PMI premiums could be significantly higher.

PMI is like an umbrella on a rainy day—it’s there for the lender, not you. And the worse your credit score, the pricier that umbrella gets.

4. Higher Escrow Deposits

An escrow account holds money for property taxes and homeowners insurance. Some lenders require an upfront deposit at closing, especially if you have a lower credit score. This reduces their risk in case you miss payments.

With a strong credit score, lenders may not require as large of an escrow deposit, saving you money at closing.

How to Improve Your Credit Score Before Closing

If your credit score isn’t where you’d like it to be, don’t panic. There are steps you can take to boost it before closing on a home, potentially saving you thousands in fees.

1. Pay Down Credit Card Balances

High credit utilization can drag down your score. Aim to keep your credit card balances below 30% of your credit limit—or better yet, pay them off completely.

2. Make All Payments on Time

Your payment history accounts for 35% of your credit score, making it the most crucial factor. Even one late payment can hurt your score significantly.

3. Avoid Opening New Credit Accounts

Every time you apply for new credit, it results in a hard inquiry, which can temporarily lower your score. Keep new applications to a minimum before applying for a mortgage.

4. Check Your Credit Report for Errors

Mistakes on your credit report can unfairly lower your score. You’re entitled to a free credit report from the three major credit bureaus—Experian, Equifax, and TransUnion—once a year. Dispute any inaccuracies to improve your score.

5. Keep Old Accounts Open

The length of your credit history influences your score. Even if you no longer use an old credit card, keeping it open (with a zero balance) can positively impact your score.

Negotiating Closing Costs with a Lender

Even if your credit score isn’t stellar, you may have some wiggle room when it comes to closing costs. Here’s how to negotiate and lower your costs:

1. Ask About Lender Credits

Some lenders offer credits that reduce upfront closing costs in exchange for a slightly higher interest rate. This can be a good option if you’re short on cash.

2. Shop Around for Lenders

Different lenders have different fee structures. Comparing offers from multiple lenders can help you find the best deal.

3. Request a Reduction in Fees

Some fees, like origination or application fees, may be negotiable. It never hurts to ask if they can be lowered or eliminated.

4. Work with the Seller

In some cases, the seller may be willing to cover part of your closing costs as part of the negotiation process.

Final Thoughts

Your credit score matters—a lot. From the interest rate you’ll get to how much you’ll pay in closing costs, it plays a crucial role in shaping your home-buying experience.

A higher score can help you secure lower fees, better loan terms, and more negotiating power. On the flip side, a lower score might lead to heftier costs and stricter loan requirements.

If you’re planning to buy a home soon, take some time to improve your credit score. A few small changes today could save you thousands at closing. And when the big day comes, you’ll be in the best position possible to step into your new home without unnecessary financial stress.