Many of you know that your credit score plays into your mortgage rates. However, what some of you may not understand is how exactly it works and how it may be keeping you from getting good rates on your mortgages. This is why we thought it would be useful to put together a short discussion on this subject. If this is something that you’re interested in learning more about, read on as we break down how your credit score affects your mortgage rates.
What Is a Credit Score?
A credit score is between 300 and 850, which represents a borrower’s creditworthiness. The higher the score, the better. A credit score is based on a consumer’s entire credit history. This means that everything from the number of open accounts to your past repayment history is taken into consideration when computing the credit score. Lenders use credit scores to evaluate the probability that an individual will repay loans in a timely manner.
How Does Your Credit Score Affect Mortgage Rates?
As we’ve already mentioned, lenders factor in a borrowers’ credit score when gauging their creditworthiness. If your credit score is in the low 600 range, you will not be able to get the best mortgage rates that are available, and you will end up paying more money over the term of your mortgage. For example, if you apply for a 30-year fixed-rate mortgage, you could end up paying 3% more a year with a credit score of 620 than you would with a credit score of 680, or $5,420 more over the life of your mortgage. Essentially, having a low credit score can subject you to potentially disadvantageous terms.
This isn’t really surprising if you really think about it. If you have a low credit score, it makes lenders less confident when they loan you money. To make up for this, they will usually charge you higher rates in order to offset the risk associated with offering you a loan.
How Can You Build Your Credit Score?
Luckily, there are things you can do to boost your credit score. Contrary to popular belief, there are actually simple steps you can take to improve your credit score to get better loans. Here are a couple of effective tips to increase your credit score:
- Pay off outstanding debt.
- Limit your spending on your credit cards by keeping it to 30% of your credit limit.
- Start making rent, credit card, car loan payments on time.
Now, it’s important to note that it may take time to get your score back up. Just make sure to stay consistent with how you apply these tips so that you can get your score up as soon as possible.
We hope this article proves to be useful when it comes to helping you better understand how credit scores work. As you can see, your credit score is incredibly impactful when it comes to mortgages and mortgage rates. It’s in your best interest to keep your credit score high, as a high credit score will give you access to more reasonable and flexible mortgage rates.
Aside from working on your credit score, it’s also important that you find the right lender for you. If you’re looking for home loans in Santa Ana, then you’ve come to the right place. NetLending is a top wholesale mortgage broker with branches in Hawaii and California, offering the right mortgage, best rates, and ideal terms. Contact us today!