How Does Your Credit Score Affect Mortgage Rates?
When you are purchasing a home, the interest rate of your mortgage will impact the overall amount that you will have to pay for your property throughout the duration of your loan. A borrower’s credit score directly affects mortgage rate pricing, and the higher your credit score is, the better interest rates you will be able to qualify for. If you are interested in buying a home in San Luis Obispo, California, and have questions about your credit and financing options, Central Coast Lending with Mike can help. Read on to learn more about how your credit score affects mortgage rates.
The Impacts of Credit Score on a Mortgage
Your credit score will affect several factors when you go to buy a home, including the type of mortgage that you will be able to qualify for, the amount of money you will be able to borrow, and the amount of private mortgage insurance you will be required to pay. Mortgage lenders increase the price of a mortgage for every risk that is attached to a borrower’s credit profile so that they can protect themselves from financial loss. Therefore, the lower a borrower’s credit score is, the higher the interest rate of the mortgage will be, causing a borrower to pay more money over time. However, if a borrower has a higher credit score, that demonstrates that they are more likely to pay back a loan, making them eligible for lower mortgage interest rates.
How Is Your Credit Score Calculated?
Credit scores are calculated with the FICO scoring model and are compiled by credit reporting companies. Credit reports evaluate a person’s payment history with borrowed money, and factor in the length of a borrower’s credit history, balances on credit cards, and the overall amount of debt that is owed. Credit scores range from 300 to 850, and scores of 670 or higher are typically considered “good” credit scores.
Tips For Improving Your Credit Score to Get a Better Mortgage Rate
You can make a notable difference to the total amount you have to spend when you buy a home by taking steps to improve your credit score beforehand. Some tips to improving your credit score include:
- Review your credit score and monitor any possible fraudulent charges or errors that could impact your score.
- Pay down current credit debts. It is advisable to pay off the debts with the highest interest first.
- Keep older accounts that you no longer use open, even if they’re paid off already. This increases your credit limit, which also increases your credit score.
Get Help Understanding Your Financing Options
If you take steps to improve your credit score, it will reduce the price you will need to pay when you purchase your home. If you are ready to buy a home in San Luis Obispo, California, and want to better understand your financing options, contact Central Coast Lending with Mike today for a consultation.