How Credit Scores Can Influence Your Mortgage Rates

We always hear financial experts stress the importance of maintaining a good credit score, because without it, you can really have a difficult time borrowing money. Sometimes, though, lenders will still extend you a loan despite a poor credit score, but the borrowing costs can be very expensive. Credit scores impact the interest rates you are going to pay even for mortgages. So, if you want to buy a home and you will need a loan to do so, you should really pay attention to your credit scores.
Understanding credit scores and mortgage rates
Do you know that the amount of interest you are going to pay over the life of the loan can add up to thousands and thousands of dollars more if you don’t pay close attention to your credit score? Basically, the higher your credit score, the more affordable the interest rate will be. Keep in mind that in large loans, like your mortgage, even a small percentage point can already make a big difference in the amount of money you are going to pay or save. In addition, credit scores are also vital when it comes to determining your eligibility to get a mortgage at all.  Borrowers with a low credit score are simply viewed as a risk to the business so the consequences are two-fold – whether they get the loan at an expensive rate or not get that loan at all.
Mortgage rates by credit scores – What lenders usually look for
When you have sub-par credit, lenders have to generate higher yields from such risky investments. You’re considered a risk because your credit score speaks so much about how you handle your credit.  For instance, if yours is within the low credit score range it can be a result of too much debt, mishandled credit or loans, or other financial mismanagement. Lenders determine the loan rate to be applied to you by checking your credit score, so if you have good credit, for example, you will be matched with a reasonable interest rate. Although your income and financial resources are taken into consideration when determining whether or not you can get a mortgage, lenders will look very closely at your credit score and credit history.
Start establishing good credit!
While you may have a not so perfect credit score today, it doesn’t mean the end for you.  Credit scores are constantly changing depending on the things you do to your credit. Of course, too much negative activities (such as paying bills late, maxing out credit card limits, too many lines of credit opened, or not paying debts at all), can knock several points off your score, so you have to avoid such habits as much as possible.
Therefore, before you apply for a mortgage, check your credit score so you can have a clear picture of how your current credit position stands. If you think that you need to fix your payment habits, do it as early as possible, because once you stay current with your monthly payments, you can see improvements on your credit score in a short period of time. Also, if you’re using credit cards, you need to carefully choose what items you charge with them. Always pay attention to your spending habits and make sure to efficiently pay your credit card payment on time each month so you can maintain a positive payment history, which is very vital for your credit score’s health. If possible, eliminate the other debts you have, in order to lessen your credit utilization rate and focus on your mortgage only.
Also, before you apply for a mortgage, make sure that you conduct online research of different companies so you can have a better idea as to how much you would be paying for the interest rate commensurate to your credit score. Finally, it’s necessary to do all of these credit score “maintenance” methods several months before you apply for a mortgage to see significant improvements.
Remember that mortgage financing is a long-term, major financial investment you’re going to make. Once you’re in it, you have to face all the responsibilities that will come your way. So, make sure you are well-prepared before you engage in this large of a financial decision.