How Your Credit Score Affects Your Mortgage Rates

The mortgage lender is not the only one who rates your credit. The mortgage lender will use your credit score to determine how likely you are to repay the loan and whether or not they want to lend money to you. They may offer you a higher interest rate if they think that there’s a chance that you might default on the loan. If they offer you a higher interest rate, it’s important to understand exactly what effect this will have on your overall borrowing costs.

But What Exactly Is A Credit Score?

When it comes to mortgages and other types of loans, your credit score plays a big role. Your credit score is a number that reflects your credit history and is used to determine how likely you are to repay a loan. It’s calculated by considering the information in your credit report, which lenders can access at any time. 

Your credit score affects everything in your life, from whether or not you’ll get approved for financing on a new car or home purchase to what kind of interest rate you’ll qualify for when applying for any financing. 

Lower Scores Mean Higher Costs To Borrow

A lower credit score means you’ll have to pay more interest on your mortgage.

In other words, if your score is between 699 and 749, you may have to pay a higher interest rate on a loan than someone with a score of 800 or above.

The higher the score (or lower the number), the better off you are. The same holds for rates: A low-cost loan can save you thousands over time because it will be cheaper for you to borrow money and make monthly payments than it would be if you had a higher rate.

Which FICO Score Do Mortgage Lenders Use?

Most mortgage lenders use the FICO score as a guideline when approving mortgage rates. The FICO score, the most common credit score used by lenders, is based on information in your credit report.

The three-digit number ranges from 300 to 850 and is calculated using information such as:

· Your payment history — how often you’ve paid bills on time

· How much debt you have compared with what you can handle (the debt-to-credit ratio)

· How long it’s been since you last applied for credit (length of credit history)

Tips To Boost Your Credit Score

Here are a few tips to boost your credit score:

· Pay your bills on time. Not only will this help you keep a low balance on your credit cards, but it can also make you less susceptible to identity theft.

· Keep your debt levels low relative to the amount of money you earn, ideally less than 30% of annual income. This means keeping balances below $1,000 for every $5,000 in annual income for consumers with good credit scores and below $500 for every $2,000 in annual income for those with bad scores.

· Avoid opening too many new accounts at once or closing unused ones (such as store cards). These actions may lower the average length of one’s history on file and therefore reduce how much weight is given to it when calculating their score—thus increasing the chances that borrowing costs will be higher than they otherwise would have been if no changes were made at all.

Conclusion

We hope this article helped you understand how your credit score affects your mortgage rates. If you’re looking for more information about how to improve your credit score, we recommend checking out our other blog posts on the topic.