You could pay more than $31,000 in extra interest per $100,000 borrowed if your score is very low compared to very high. Even dropping down just one score range could cost more than $4,000 in extra interest for each $100,000 borrowed over the life of your loan.
Improve your credit score before applying for a mortgage
The answer to the question “does credit score affect mortgage rates” is a resounding yes. So it’s imperative you do everything possible to improve your credit before applying for a mortgage. Some steps to take include:
- Improve your payment history: Pay your bills on time all the time to develop a positive payment history. This is the most important factor in your credit score. If you have one late payment on your credit history, consider reaching out to the lender. You can ask for a goodwill adjustment where they remove that record of the late payment. If you’ve mostly been a good customer, many creditors will do this, and it can make a big difference in your mortgage payment.
- Pay down debt: By reducing your debt-to-credit ratio, you improve your credit utilization rate and increase your credit score. This will also help you improve your debt-to-income ratio, another important metric mortgage lenders consider. It evaluates how much of your income you’re using toward debt payment.
- Correct mistakes: Ensure you don’t have to pay a higher mortgage rate due to errors on your credit report. It can take time to get a mistake corrected, so check your credit several times in the months leading up to applying for your mortgage. Take action with the credit bureau if you notice incorrect info.
- Avoid taking out new loans: Borrowing money or opening a new credit card will lower your average credit age and hurt your score. Even applying can affect your credit score, as 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 you’re getting in over your head with debt, thus lowering your score.
It can pay to take a few extra months to try to boost your credit score before applying for a mortgage loan. Answering the question “does credit score affect mortgage rates” shows why this can make sense. Raising your credit score could save you thousands of dollars in interest over the life of the loan.
You can also consider shopping with the best mortgage lenders for first-time home buyers if your credit is imperfect. They may be more forgiving of a lower credit score.
Good credit is important when applying for a mortgage
Clearly, based on the answer to the question “does credit score affect mortgage rates,” it’s important to have good credit when you apply for a mortgage, especially if it’s one of the best mortgage lenders.
By working to get a good credit score, you can secure the most favorable terms possible for your mortgage — and your loan should be more affordable to pay back due to your efforts.
View more information: https://www.fool.com/the-ascent/mortgages/how-does-credit-score-affect-mortgage-rates/