The Impact of Good Credit Score on Mortgage

Summary: If you're buying a home soon, try not to apply for new credit. Though it's not always avoidable, For instance, if you need a car loan or college financing, you should resist opening several new lines of credit in a short time. Multiple new accounts can decrease your good credit score. All three available bureaus make it easy to dispute errors online. If everything is correct, pay down balances and let time do the rest. The reporting agencies do charge a fee if you want to know your score. Lenders look at all 3 scores and use the middle one.

The most important factor when calculating your mortgage rate is a good credit. The higher your score, the lower the interest rate on your mortgage. When you have a good credit score you get lower interest rate on your mortgage than someone that has a bad score. With a good credit score of 740 and above, you will get the best interest rate from most lenders. It might not be easy to get a mortgage with a score of 620 and below but it’s not impossible. The difference between both could be a whole or half percentage point. A good credit score is not only important in a mortgage rate; it also affects your chances of getting home loan. Buyers with a FICO score of 620 and below have very slim chances of getting mortgage. It might be possible do but will require a lot of research and work.

With a good credit score of 740 or more you will be eligible to get the best mortgage rate from lenders. The mortgage rate could vary by as much as one and half percentage point between the highest to the lowest tiers. One percentage point makes a huge difference. An example is a monthly principal and interest payment on a 30-year fixed-rate mortgage for $200,000. A good credit score of 740 or more should qualify for the best mortgage rates from most lenders. Depending on the lender, the mortgage rates offered to the highest and lowest tiers can vary as much as a full percentage point and a half

Interest rate Monthly principal and interest

4%         $954.83

5%         $1,073.64

Lenders look for borrowers with a low balance, long history of on time payment and a mix of credit utilization such as car loan and a couple of other revolving accounts such as credit cards. Lenders also look at several variables on the report such as outstanding debt, outstanding debt relative to the total available debt, the length of history and chasing a new loan. It’s best to check your report about a year before buying a home. This will create some time to get it corrected if there is any error on the report and change the way you use credit to improve your good credit score. Sometimes people will quickly glance over their information and that's it. But you should take the time and look at the account numbers.

Related Source: How Good Credit Can Get Personal Loans