Credit Scores and Your Mortgage
As the new year begins, the prospect of purchasing a home might be top of mind. It’s an exciting goal to pursue and the early stages of preparation are crucial. One key step in readying yourself for homeownership is cultivating a strong credit score.
Lenders scrutinize your credit to gauge your ability to make timely payments, settle debts, and more. It’s also a crucial factor in determining your mortgage rate. As CNBC explains:
“When it comes to mortgages, a higher credit score can save you thousands of dollars in the long run. This is because your credit score directly impacts your mortgage rate, which determines the amount of interest you’ll pay over the life of the loan.”
Your credit score takes on added significance in your homebuying plans today, especially given the pivotal role mortgage rates play in affordability.
According to the Federal Reserve Bank of New York, the median credit score for those securing a mortgage in the U.S. is 770. However, having a perfect credit score isn’t a prerequisite. Business Insider suggests that aiming for the ‘Good’ range (670 to 739) is an excellent starting point, while pushing for the ‘Very Good’ range (740 to 799) could help you qualify for the lowest rates.
Engaging with a reputable lender is the most effective way to understand how your credit score might influence your home loan and mortgage rate. As FICO notes:
“While many lenders use credit scores like FICO Scores to help them make lending decisions, each lender has its own strategy, including the level of risk it finds acceptable. There is no single ‘cutoff score’ used by all lenders, and there are many additional factors that lenders may use to determine your actual interest rates.”
For those seeking ways to enhance their score, Experian recommends focusing on key areas:
Payment History: Timely payments are crucial to maintaining a positive score. Address any late payments promptly to minimize their impact.
Debt Amount (Relative to Credit Limits): Keeping your credit utilization low is beneficial. Strive to maintain a lower balance relative to your credit limits.
Credit Applications: Avoid applying for additional credit when planning a major purchase like a home. New credit applications may result in hard inquiries that can temporarily lower your score.
A lender will guide you through the entire process, from assessing your score range to providing insights into specific loan types.
As you set your sights on homeownership in 2024, concentrating on elevating your credit score could lead to a more favorable mortgage rate. Let’s get you in touch with our trusted lender partners!
