Society works hard to get rid of our labels. However, one label that is extremely hard to erase is the three numbers attached to our credit score. These three numbers can determine the path that our life takes, and particularly where we call home. Your credit score is the most influential factor that determines your mortgage rate and could influence whether you get a loan at all. Here’s everything you need to know about your credit score and how it’ll control where you call home.
How Credit Scores Affect Mortgage Rate
Just like how you’d be hesitant to lend money to a friend with a poor track record, banks are also wary of lending money to people with poor financial history. Lenders tend to lend money to people who have great records and are known to pay back their money on time. Since the banks don’t personally know you, the best way to determine if you are financially stable is through your credit score. The higher your credit score, the more likely a bank will give you a loan for a home. A higher score will also lead to lower mortgage rates, as the bank knows you can be counted on to repay them.
The Best Scores for a Mortgage
You will typically get a good interest rate if your credit score is above 700. You can still qualify for a loan if your score is between 640 and 680, but you should expect to pay higher interest rates. A person with a score under 640 will find it extremely difficult to acquire a loan. However, if your score is about 720, you are considered in the good range and a score above 760 will give you the best rate you can find.
You may not see the affects of your credit score at first, but added over the years it could make a huge difference. A 100-point drop in your rate could add up to an additional $12,000 over 30 years. Therefore, you should always take the rate that you qualify for, as it will significantly benefit your wallet.
How to Build Your Credit Score
Prior to seeking out a loan, you should make sure that your credit is in good standing. Review your credit report and evaluate whether you’re ready to apply for a mortgage. Make sure all of your payments including rent, credit cards, and car loans are paid on time. If you miss a payment, be sure you know how to get a late payment removed from your credit report. You should also make sure that you’re only spending 30 percent of the limit on your credit cards at a time, and pay off high-balance cards or transfer them to free up credit. This will show lenders that you are a responsible and trustworthy individual. You will also want to avoid applying for any new credit until after you’ve closed on your home. Make your mortgage your number one priority and you will be rewarded with a great, affordable rate.
Your three-digit number says a lot about your lifestyle. You need to work to ensure that it reflects positively so that banks are more willing to trust you. From there, you will be able to finance the home of your dreams.