How Does Your Credit Score Affect Your Mortgage Rates?
You could be paying over $ 31,000 in additional interest per $ 100,000 borrowed if your score is very low versus very high. Even lowering a single range of scores could cost over $ 4,000 in additional interest for every $ 100,000 borrowed over the life of your loan.
Improve Your Credit Rating Before Applying For A Mortgage
The answer to the question “does credit score affect mortgage rates” is a definite yes. It is therefore imperative that you do everything you can to improve your credit before applying for a mortgage. Here are some steps you can take:
- Improve your payment history: Pay your bills on time all the time to develop a positive payment history. It is the most important factor in your credit score. If you have a late payment on your credit history, consider contacting the lender. You can request a goodwill adjustment when they remove this late payment record. If you’ve mostly been a good customer, many creditors will, and it can make a big difference to your mortgage payment.
- Pay off the debt: By reducing your debt to credit ratio, you improve your credit utilization rate and increase your credit score. It will also help you improve your debt-to-income ratio, another important metric that mortgage lenders take into account. It measures how much of your income you use for debt payment. If your debt is on a credit card, use our interest calculator to see how much you are paying for interest.
- Correct mistakes: Make sure you don’t have to pay a higher mortgage rate because of errors in your credit report. Correcting a mistake can take time, so check your credit several times in the months before you apply for your mortgage. Take action with the credit bureau if you notice any incorrect information.
- Avoid taking out new loans: Borrowing money or opening a new credit card will reduce your average credit age and hurt your score. Even one request can affect your credit score because an inquiry is placed on your report every time you apply for new credit and stays there for two years. Too many inquiries make lenders nervous that you go into debt, which lowers your score.
It may pay off to take a few extra months to try and improve your credit score before you apply for a mortgage. Answering the question “does credit score affect mortgage rates” shows why this may make sense. Raising your credit score could save you thousands of dollars in interest over the life of the loan.
You may also want to consider shopping around with the best mortgage lenders for first-time home buyers if your credit is imperfect. They can be more forgiving with a lower credit score.
Good credit is important when applying for a mortgage
Obviously, from the answer to the question “does credit score affect mortgage rates”, it is important to have good credit when applying for a mortgage, especially if it is. he is one of the best mortgage lenders.
By working towards a good credit rating, you can get the most favorable terms possible for your mortgage – and your loan should be more affordable to pay off as a result of your efforts.