If you’re in the market for a new home, you might be eager to start looking online and going to open houses. But it’s also important to know the importance of credit score when trying to obtain a mortgage loan and begin the home-buying process.
Knowing your credit score and keeping it in good shape will not only help you get a mortgage loan, but it will also determine your interest rate, according to NOLO, an online library of consumer legal information. The better your credit score, the lower your interest rate will be. A lower interest rate translates into lower monthly payments and a lower total cost over the life of the loan.
Some of the things to keep in mind include:
- Your credit report might be inaccurate. If you pay your bills on time and stay on top of your debt, you might feel confident you have a stellar credit report. But mistakes are made and every so often something will show up on a report that is incorrect. Perhaps someone with the same name but with a tendency to skip paying their creditors on time has their information popping up on your report.
- You can get errors corrected, but it takes time. That’s why it’s important to get a copy of your report early in the process, well before you start looking at houses. It will typically take at least 45 days to get any mistakes cleared up.
- Lenders usually use the FICO credit score. A score ranges from 300 to 850 and is based on payment history, debt burden, length of credit history, types of credit used, and recent searches for credit in your name.
- If you boast a score in the highest range of 760-850, you would get the best interest rate. Depending on the current rates, it might be around the 3.5 percent mark. If your score hovers in the 680 to 699 range, the percentage rises to 3.9 percent. Scores in the 620 to 639 category would be looking at 5.09 percent. In monthly payments for a $300,000 loan, the difference can range from $1,347 for the best credit score to $1,627 for scores in the lower 620 to 639 category.
As you begin your house-hunting journey, remember the importance of credit score and grab a copy of your credit report to make sure it’s accurate. It’s also important to get prequalified for a loan so you’re in good position when you find a house you want to make an offer on.
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