How Much Does Your Credit Score Effect Your Mortgage rate?
The mortgage rate you are offered from your lender is heavily dependent on your credit score. The difference between a fair credit score (580 – 669) can cost you $41,400 over the life of your 30-year mortgage compared to good credit score of 740 – 799. The buyer with an average credit score will pay about $261,000 in interest payments, while a person with a good credit score will pay $219,660.
Lending Tree reports that raising one’s credit score quickly (in a matter of weeks) is not that difficult. The main method to achieve this goal is to pay down your current debt to the best of your ability. Those seeking to purchase a home and take on a mortgage should also avoid opening new credit accounts.
Other common-sense methods include paying bills on time, not closing unused credit cards, and keeping your debt to income ratio low.
Even worse than the disparity in home mortgage rates between fair and good credit scores are the differences in personal, auto, and student loans. Here, the difference for the borrower with a fair credit score can be double that of someone with good score. But the starkest difference is with credit card debt. For credit debt, Lending Tree found the difference to be an astonishing 97%.
But even someone without student or auto loans, a good score will save an average of $115 a month on a mortgage.
Remember, your credit score represents your overall credit history. The score is determined by whether you have a history of paying your bills on time, and the total debt you carry.
Another method of raising your credit score is hiring a credit repair service. Other techniques include refinancing existing loans (including other mortgages, student loans, and car loans). Yet another method is to consolidate your debt with a personal loan – at lower rates than you currently have. Shop around for a credit card with a lower interest rate, or even a zero percent introductory balance transfer APR.
A higher score increases a lender’s confidence that you will make payments on time, which sharply increases your chances of not only securing a loan, but also a favorable interest rate on that loan. Also, some lenders may reduce the down payment requirements if you have a good credit score.
As a first step for someone who wants to take on a mortgage, but is concerned about their credit score, they can go to can go https://www.annualcreditreport.com/index.action for a free credit report.
Importantly, you are also entitled to one free credit report a year from three leading credit reporting agencies – Equifax, Experian, and TransUnion.