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You're finally in a place where you're financially capable of buying your first home, and you couldn't be any more excited. Unfortunately, you're worried about your credit score and how it might impact your mortgage rates. Never fear! Understanding this complex interaction, and how you can impact it, can help you decrease your mortgage rate significantly.
How Does A Credit Score Impact Your Mortgage Rate
The simplest way to understand the interaction between your credit score and your potential mortgage rate is to consider it an inverse proportion. This means that higher credit scores result in lower mortgage rates. Typically, you're going to want a score of at least 740 to get the best possible rate.
It's possible to get rates with credit scores lower than 740, but once you hit about 620, it's nearly impossible. Getting a good mortgage rate is vital, as a difference of even one percentage point can add thousands of dollars to your yearly payment cycle.
How To Get Your Credit Score For Free
You've probably seen advertisements for credit report companies on television, stating that they can help you find your credit score for free. Don't think that they're offering you a great deal: the government has actually made it a requirement for these reporting companies to give one free report to anyone who asks every 12 months.
However, you've heard that inquiring into your credit score can actually lower it, and you're worried about how this will impact your mortgage rate. While it's true that hard and soft credit inquiries (such as inquiries by an auto company or apartment complex) can impact your score, an inquiry by a credit report company will not. So feel free to get one before applying for a mortgage.
What Causes Your Score To Drop
If your credit score is in a pretty good place and you're ready to apply for a mortgage, you need to avoid a few simple mistakes that could cause it to quickly drop. While your credit score should generally remain fairly even, the following mistakes are deadly to it:
When situations like this occur, it can be heart wrenching to see your credit score drop and your potential mortgage rates skyrocket. However, it is possible to raise your credit score by following a few simple steps.
What Raises Your Credit
So your credit score dropped due to the problems mentioned above, and you're suddenly in a position where you no longer qualify for a mortgage. The following methods may not raise your credit as quickly as it dropped, but they can help bring it up and improve your mortgage rates:
Delay applying for your mortgage until you've increased your credit. While you may miss out on the house of your dreams, you'll avoid a terrible rate that will cost you a lot more in the long run. To learn more, you should talk to your mortgage company as soon as possible.
Share13 May 2016
