How Does Your Credit Score Affect a Mortgage?

When you become a homeowner, the interest rate of your mortgage will affect the total amount that you will have to pay throughout the life of your loan. Your credit score directly impacts your mortgage rate, and the higher that your credit score is, the more favorable interest rate you will be able to qualify for. If you are looking to buy a home in Conyers, Georgia, and have questions about your financing options and rates, Preferred Capital Funding can help. Read on to learn more about how your credit score affects mortgage rates.

How Credit Scores Impact Mortgage Rates

Your credit score is an important component when buying a home, and affects many aspects of the process, including the amount of money that you will be able to borrow, the kind of mortgage that you will be able to obtain, and the amount of private mortgage experience that you will have to pay. For every risk that is associated with a borrower’s credit profile, a mortgage lender will increase the price of a loan in order to protect themselves from financial loss. If a borrower has a lower credit score, they will have to pay a higher mortgage rate, and subsequently pay more money over time. On the other hand, if a borrower has higher credit, that shows that they are more likely to pay back the loan, and will therefore be eligible for lower interest rates.

How Your Credit Score Is Calculated

A person’s credit score is compiled by credit reporting companies and calculated using the FICO scoring model. These credit reports assess your history with borrowed money and examine the length of your credit history, the overall amount of debt that you owe, and your credit card balances. Typical credit scores range between 300 and 850, and a score of 670 or higher is considered a decent credit score.

Improving Your Credit Score To Get a More Favorable Mortgage Rate

If you take certain steps to improve your credit score before you buy a home, you can save a substantial amount of money by getting a better mortgage rate. Some ways that you can improve your credit include:

• Pay down any current debt, beginning with accounts that have the highest interest rates.
• Monitor your credit score and ensure that there are no mistakes or fraudulent charges that may have impacted your credit score.
• Even if you have paid off any old accounts, keep them open because your credit limit will be increased, which will boost your credit score.

By improving your credit score, you will greatly reduce the overall cost of your property. If you are interested in buying a home in Conyers, Georgia, and need help understanding your financing options, contact Preferred Capital Funding today for a consultation.