A credit score is a number that summarizes your credit history and helps lenders determine your creditworthiness. The lenders will take a look at your current number when you apply for a mortgage. This is done to assess your risk as a borrower and determine what interest rate they are willing to offer you.
The rule of thumb is the higher your credit score is, the lower the risk of default and the better the interest rate you’ll likely receive. On the other hand, if you have a lower credit score, lenders will view you as a higher risk and may offer you a higher interest rate or, in some cases, may not approve your request.
So, having a good credit score can potentially save you hundreds of dollars in the form of lower interest payments. Conversely, a low credit score can result in higher interest payments, making your mortgage more expensive.
What credit score do I need to get the best mortgage rate?
720 or higher: A credit score of 720 or higher is generally excellent and can help you secure the best mortgage rates, which means low-interest amounts.
680 to 719: A score in this range is still good and will even then allow you to qualify for a favorable mortgage rate, although not as low as those with a higher score.
640 to 679: If you lie in this range, it is considered a fair value and may impact your ability to secure the best rates, but you may still be able to qualify for a loan.
600 to 639: If your score is between 600 to 639, that is poor and may make it difficult to get a loan at a good interest rate; however, do not lose hope. You can, either way, qualify for a loan by offering to pay a higher interest rate too.
Below 600: A score below 600 is extremely poor and does create a lot of hindrances in securing a mortgage loan. In this case, the best step is to work on your credit score first and then do anything else.
It’s worth noting that credit scores are just one factor that lenders consider when evaluating mortgage applications. Other factors, such as income, employment history, and debt-to-income ratio, can also impact your ability to secure a favorable mortgage rate.
How Can You Improve Your Credit Scores?
Here’s how you can easily do it:
- Pay your bills on time: Late or missed payments can significantly negatively impact your credit score. So, pay up on time to build a good rapport.
- Reduce credit card balances: High credit card balances can lower your credit utilization ratio and can work to get it up a notch very fast.
- Dispute errors: Do make sure to check your credit reports regularly for errors or disputes if there are any discrepancies with the credit bureaus.
- Limit new credit applications: Every time you ask for a loan, it negatively impacts your credit score, so it’s best to stop putting up any new applications.
- Keep old credit accounts open: Having a long credit history can positively affect your credit score, so it’s a good idea to keep old credit accounts open, even if they are not in use.
- Make payments on time and in full: Late or missed credit payments can lower your overall credit score; therefore, keep enough savings to make payments on time and in full.
Final Words
Remember, improving your credit score takes time, so it is crucial to have patience and be consistent with your efforts. Get in touch with professionals from Reddoor Funding by dialing (832) 539-1099 for more information or help.