What Home Buyers Should Know About Credit Scores

Dec 5, 2017Financing, Home Financing, Homebuying Process

In a prior blog post, we talked aboutwhat home buyers should know about interest rates, and how rates impact home buying power. Home buyers should also know how their credit score affects the mortgage interest rate theyll be offered!

You cannot control the market direction of interest rates, but you can control the strength of your credit score.The higher your credit score, the lower the mortgage interest rate youll be offered.

A positive change to your credit score can improve your chances of landing a lower interest rate, and make a noticeable difference in yourmonthly mortgage payment!

Here are some examples published by The Motley Fool. Please note, these calculations were based on the mortgage rate environment at the time, and do not reflect todays market conditions.

If you have a credit score in the 760 to 850 range, and youre borrowing $200,000 using a fixed-rate, 30-year mortgage, you would qualify for an interest rate of3.28%. This would create a monthly principal and interest (P&I) payment of$874.

If your score is in the lower range of630to650, your mortgage rate would be significantly higher at4.87%. This means paying $184.00 more per month, with a P&I payment of$1,058.Thats an extra $2,208 per year!

Improving your credit score will help you get the best mortgage offers, which in turn will save you money over the life of the loan. Heres a few ways to do it:

Pull your credit historyfromannualcreditreport.com. If you disagree with any item in your history, file a dispute with the reporting agency. Be prepared to supply proof of payment or other documentation to support your case. Allow 30-60 days for the disputed item to clear.

Address any collection accounts. Having just one account in collection can cause serious damage to your credit score. To have the strongest negotiating position with a collection agency, be prepared to make a lump-sum offer. You can also ask to have the item completely removed from your credit report. Not all collection agencies will do this, but it doesnt hurt to ask.

Pay down your credit cards and any other lines of credit.The higher debt load you carry, the more it pushes down your credit score. Generally, you shouldnt use more than 10% to 30% of your available credit limit.

Avoid opening new lines of credit that you do not need. Having several new credit accounts can hurt your score. In contrast, seasoned, well-kept accounts actuallyhelpyour score. For this reason, you shouldnt open new accounts unless you really need them, and you shouldnt close old accounts, even if you seldom use them. You can find more credit tips by visitingMyFico.com.

Looking for more home buying guidance?Find an Exclusive Buyer Agent in your area today! Your EBA can refer you to local, trustworthy mortgage lenders, and help you throughout each step of the home buying process.


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