How your credit score can help your mortgage rate

Your credit score can save you more.

Do you know how significant a credit score is when attempting to get a mortgage?

Indeed, a credit score can be a huge deal when it comes to making the big decision of purchasing a home.

The higher the credit score, the lower the interest rate may be when attaining a mortgage loan. The mortgage industry has termed this ‘Risk Based Pricing.’  Basically, a credit score defines a consumer’s financial responsibility. It’s sort of like a report card in school. If the score is high, then the mortgage industry assumes that person will be a lower risk, thereby a lower interest rate. However, someone with a low credit score, may be considered a higher risk thereby resulting in a higher mortgage interest rate.  Not all lenders and mortgage loan programs subscribe to ‘Risk Based Pricing’ models.

While there are other factors that go into securing a mortgage, with a good credit rating, the consumer has a better chance of acquiring more favorable mortgage options and possibly lower interest rates. Alternatively, a lower credit score can prove damaging when trying to purchase a new home.

Now, there’s no doubt that you’ve heard “credit score” uttered in any of the countless radio and TV commercials, but that doesn’t mean you understand what it truly is and how you’ve earned yours. It’s a three-digit number, which generally falls between 600 and 800. The consensus for most is that a score of 680 or better is an indication of good credit management.

Now, don’t panic if your credit is poor. There are things you can do to improve it, but you must be patient. You can’t change it overnight. Avoiding new credit card purchases and applications, leaving accounts open and paying off debts are just a few of the ways you can start doing it.

To learn more about credit scores and mortgages, contact the professionals at Mortgage Services III in Shorewood at (815) 207-8900.

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