Your Credit Score could Affect Your Mortgage Rates

Perhaps the most important aspect of applying for a mortgage is your credit score. While there are several factors that can affect your mortgage interest rates, experts by and large agree that your credit score is the pivotal factor. Borrowers with high credit scores, usually anything over 760, are eligible for interest rates under 6% and get the most loan choices. Those with credit scores under 700 but above 600 can typically still get decent rates, between 6%-7%. People who have scores below 600 are generally stuck with the highest rates, anywhere from 7% to nearly 10%, if they can even get approved for a mortgage. As you can tell by those rates, the difference between a good credit score and a poor one is tremendous, easily adding up to thousands of dollars over time. Fortunately, even if you have a poor credit score right now, there’s plenty of ways for you to bring it up before applying for a mortgage.

Improving Your Score

• One way you may be able to increase your credit score before applying for a mortgage is by paying down your balances, especially those that are close to the limit. Using a high percentage of your credit can hurt your score, so try to keep a good balance in your debt to credit ratio.
• There’s a common misconception among consumers that you should close your credit accounts if you want to increase your score. The truth is, closing your accounts will not increase your score and could even decrease it. Closing accounts can increase your debt to credit ratio and lower your overall credit history.
• Long before you apply for your mortgage, you should get copies of your credit report from all of the major credit bureaus. Make sure all of the information they contain is accurate and up to date. If you do find any mistakes on your report, contact the lender involved immediately because errors can take months to sort out.

Other Factors

As mentioned earlier, your credit score is a crucial factor in determining your mortgage interest rates, but it’s not the only one. That means your low credit score won’t necessarily stop you from obtaining a good interest rate. Something that can help is having an overall low debt to income ratio or large cash reserves. Another off-setting factor that can help balance out a low credit score is having a large down payment for your mortgage. With a big down payment, you won’t have to borrow as much money and lenders will be more likely to give you a favorable rate. Of course, like any loan product, mortgage vary from lender to lender so it pays to shop around and get the best rate possible, regardless of your credit score.