How Much Does Your Credit Score Affect Getting a Good Mortgage?
Thursday, July 16, 2015, 6:00 AM | Leave Comment
Your credit score is the most influential factor in determining your eligibility for a loan and the rate you will receive for your mortgage. Your credit score affects the types of mortgages you are eligible for, how much you will be able to borrow, and the rates you will pay on your loan.
A credit score of 740 or above will help you receive the best rate for your mortgage, while a score below 620 greatly reduces your chance of securing a home loan. For conventional loans, you will need a credit score of at least 620.
Here is just a little information that may help you get a better mortgage than what you were expecting.
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Factors That Affect Your Score
Several variables affect your credit score including your payment history, the amounts you owe, the types of credit you have, and how many new lines of credit you open.
Your payment history needs to show that you pay your bills on time. Be sure to avoid high balances because the closer your balance is to your credit limit, the lower your score.
Maintaining a variety of credit types, such as a mixture of loans and credit cards, can boost your score. You should also avoid opening several new lines of credit in a short period of time because it will cause your score to drop.
Shopping around for the best loan terms, however, will not negatively impact your score if done within a short period of time.
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Start Improving Your Score Now
Many are unaware of what their score is, and this can mean serious problems if you are in the market for a loan on a mortgage. Using a resource like SettlementOne or other appraisal management companies can help you find out where you stand, and what banks would be able to provide support.
Be sure to scrutinize your report to ensure everything is accurately reported and quickly correct any mistakes you find.
If your credit score is less than perfect, you can and should start improving it before you apply for a home loan.
If you are behind on any payments, get caught up as soon as possible.
If you are approaching the limit of any of your credit cards, pay down the balance until you are well below your credit line.
Remember, lenders want people with low balances and even if you make your payments on time, borrowing a large percentage of the credit line available hurts your score.
Of course, your credit score isn’t the only factor lenders will consider when deciding whether or not to approve you for a home loan.
If you have a low credit score, you can increase your chances of getting approved for your mortgage by placing a large down payment on your house or by having a low debt-to-income ratio.
Keeping track of your finances and implementing the best practices for credit score improvement can have a serious effect on your potential mortgage rate.
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