How Your Credit Score Affects Your Mortgage Rate
If you’re like most borrowers, you don’t want your mortgage payments to be any larger than necessary. As a home buyer, you may be contending with a number of unusual expenses—preparing your existing home, moving, new insurance, new furnishings, possible repairs or remodeling, and so on.
Every dollar matters. So what can you do to lower your monthly mortgage payments?
Borrowers have three primary approaches to lowering payments: 1) larger down payment, 2) longer repayment schedule (term), and 3) higher credit score.
Your Sente Mortgage banker can describe these options in detail and you may also wish to read our post on All About Credit Scores. But here’s a quick look at the relationship between credit scores and mortgage rates.
When you apply for a loan, the lender evaluates your creditworthiness. There is risk for the lender, and they want to keep that risk as low as possible. One of the tools that lenders use is the credit score. Your credit score is a combined overview of your payment history, amounts owed, length of credit history, types of credit, and new credit. Based on that information, your creditworthiness is given a score between 300 and 850. The higher your score, the lower the risk for the lender.
Some loans require a minimum credit score, but in many cases, lower credits scores are simply offset by higher rates or other fees. Over the life of a loan, a quarter point difference can mean thousands of dollars spent—or saved!
The sooner you can start raising your credit score, the better; it doesn’t happen overnight. If you are considering the purchase of a home, you will want to start working on it now.
There are a few easy steps you can take:
- Review your credit report. You can get a free credit report each year from the federally approved AnnualCreditReport
- Resolve any errors. If there are charges you dispute or payments that have not been recorded, follow up to make sure these are cleared from your accounts.
- Pay your bills on time. Even if you’ve been late before, start your on-time payments today. Set up a reminder system on your calendar, computer, or phone.
- Pay down your balances. Your credit card balances should be no more than 30 percent of the maximum limit on the card.
- Steer clear of new credit. This includes credit cards, new lines of credit, and new loans (such as automobile or school loans).
Work with your Sente Mortgage loan officer to create a plan that will get you the credit score, the loan, and the home of your dreams. Give us a call any time.
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