Mortgage rates climb higher as more and more people invest in housing. It is really important, as a consumer, to ensure that you get the lowest possible mortgage rate. This is because you will be stuck paying the monthly payments for quite some time. There are a lot of factors that affect the mortgage rate you may get. However, the credit score you have remains one of the biggest determinants for banks.
When you have a low credit score, it can actually affect the amount of mortgage you will receive. Studies show that people with higher credit scores are actually able to attain lower mortgage rate pretty easily; even a 25 point difference can lead to huge savings over a period of time. This why it is important to learn more about the effect of bad credit scores and how you can improve your score.
How Much Difference Does Credit Make?
Credit scores actually matter the most when it comes to securing a good mortgage rate for your new home. Even a 100 point difference can result in a difference of thousands of dollars. For example, if a woman with a score of 780 is looking to buy a home worth $300,000 with a down payment of 20%. She will probably have to pay around $1,129 over a 30 year period since most banks offer a 3.875% rate of interest at such scores. This amount actually doesn’t even include insurance, taxes, and other fees.
Just a 100 point difference with the credit score can change the whole scenario. If she had a score of 680, her rate of interest would increase to 4.125%. This actually means she will end up paying $12,240 more to the bank. That’s a rate of almost $500 per year. Added up over years even a difference in $30 per month is a lot.
This is why it becomes really crucial for people to work on their credit score before attempting to buy a new house.
What Can You Do To Improve Your Score?
There are a few things you can attempt in order to make your credit score better. Even a little difference can generate a lot in terms of savings.
- Limit the spending on your credit cards. Heavy debt can increase your credit score immensely.
- Make payments such as rent, loans, and credit card bills on time. Late payments can drastically decrease your credit scores.
- Look around for the best mortgage packages in the local area but limit your inquiry over a 30 day period. Too many inquiries can make it harder to secure a good mortgage rate.
- Work with a credit counselor like Venture Credit Solutions. They can go over your credit history and fix errors to repair your score. They also advise you on some financial decisions that can help you get your credit score back on track. This is actually one of the most effective ways to lower your credit score.