Your credit score is one of the most important factors when it comes to getting a mortgage. A good credit score will give you access to more competitive interest rates, while those with low credit scores may struggle to qualify for a loan or end up paying much higher rates.
But how exactly does your credit score determine what kind of mortgages you can get? Well, things are a bit more complicated than they used to be. Let’s figure out how:
What Is a Credit Score?
Essentially, your credit score is a three-digit number that lenders use to evaluate how likely you are to pay back the loan. Generally, the higher your credit score, the more likely you are to qualify for better terms and lower interest rates.
A good credit score can range from 680 to 719, while excellent scores typically fall between 720 and 850. And vice versa.
How Does Your Credit Score Affect Mortgages?
When applying for a mortgage, lenders will review your credit report and use it to determine whether you are approved or not. Lenders also use your credit score as an indicator of your overall financial responsibility, which can impact the amount you qualify for in a mortgage loan.
The higher your score, the more likely you are to qualify for a lower interest rate and better terms on your mortgage. On the other hand, those with poor credit scores may struggle to even qualify for certain types of mortgages or will be required to pay much higher rates than those with good credit scores.
As per the latest federal rules, Americans with good credit scores will be paying more mortgages. And those who have low credit scores will be paying fewer mortgages. But this does not mean that you should not care about your credit history.
Understand Your Credit Score Before Applying for a Mortgage
It is important to understand your credit score before applying for a mortgage in order to know what kind of loan you are likely to get. This can help you make an informed decision about whether or not it makes sense financially. And give you time to take steps toward improving your score if needed.
You can use a free online service to check your credit score or contact one of the three major credit reporting bureaus. You will get an in-depth look at your entire credit history and be able to assess the factors that are impacting your score. This can help you identify areas for improvement and work toward getting better terms on your mortgage.
Understanding how your credit score affects mortgages is essential if you are planning to purchase a home in the future. By taking steps towards improving your credit, you will have access to more competitive interest rates. Eventually, saving you money in the long run!