When purchasing your first home, the interest rate that you get on your mortgage will impact the overall cost you will be required to pay throughout the life of your loan, and your credit score will directly affect the cost of your mortgage interest rates. The higher your credit score is, the better mortgage rate you will be able to acquire. If you are interested in buying your first home in Mount Pleasant, South Carolina, and are interested in better understanding how your credit score influences your mortgage rate, Lucey Mortgage Corporation can help. Read on to learn more about how to improve your credit score in order to secure a great mortgage rate.
Mortgage Rates and Your Credit Score
Your credit score will affect many factors when you go to purchase a home, including the mortgage rates you will have to pay, the types of mortgages you will be approved for, the amount of money you will be able to borrow, and the amount you will have to pay for private mortgage insurance. Since mortgage lending is formulated on risk-based pricing, mortgage lenders will increase the price of a mortgage for each risk that is associated with your credit profile. Therefore, the lower your credit score, the higher your mortgage rate will be, which means you will ultimately have to pay more money over the duration of your loan. However, having a higher credit score demonstrates to borrowers that you pose less risk and are more likely to pay back the loan on time, leading to lower mortgage rates.
How Does Credit Scoring Work?
Credit scores are usually calculated using the FICO scoring model, and your credit score is acquired from credit reports that are compiled by credit recording companies. The FICO scoring range is between 300 – 850, and a score of 670 or higher is considered a good credit rating. Your credit score report will include the history of your payment habits with borrowed money from the past, including such items as the length of your credit history and your credit cards balances. Essentially, the higher your credit score is, the lower your interest rates will be, which will allow you more flexibility with your lender on other mortgage requirements, such as your down payment amount and the length of your mortgage payment terms.
Get Help Improving Your Credit Score to Receive a Better Mortgage Rate
There are several actions you can take to begin improving your credit score so you can get a good mortgage rate on a new home, including:
- Paying down any credit debts you may have, beginning with any loans that have higher interest rates
- Keeping your paid off accounts open still to allow your credit limit to continue to increase. Higher credit limits will increase your score
- Monitoring your credit score and reporting any errors or fraudulent charges
If you are interested in taking steps to buy your first home in Mount Pleasant, South Carolina, and need help securing a great mortgage rate, contact the loan specialists at Lucey Mortgage Corporation today.