When it comes to getting a mortgage, your income and the down payment are both important factors. But they aren’t the most important factor. That would be your credit score. Not only does is a good credit score needed for approval to buy a car, boat, or home, but it also will play a major role in whether you get a low interest rate or not.
Credit Score for Low Mortgage Rates
Though it varies from lender to lender, you generally need a credit score of somewhere between 720 and 760 to get the lowest interest rate possible. This is usually the rate that the bank or mortgage broker advertises. Though many lenders will give mortgages to people with scores as low as 620 and even lower, the interest rate will be much higher.
While your credit score is the most important factor in getting a low mortgage rate, it isn’t the only one. If you are getting a loan through a government-backed program, such as a VA or FHA loan, you may not need a high score to get the best rate available. You also may be able to get a lower interest rate by paying points, which are upfront payments you can make to lower your interest rate.
Why Getting a Low Rate is Important
Because mortgages are such long-term loans, usually with 15- or 30-year terms, even small increases in the interest rate can mean you pay thousands or even tens of thousands more in financing costs over the life of the loan.
Improving Your Score
If your credit score isn’t high enough to get the lowest interest rate available on a mortgage, there are some things you can do to improve it. Pay off any past-due balances as soon as possible, and reduce the amount of debt you are carrying on your credit cards. Always stay vigilant regarding your financial security, and conduct regular security audits of your credit card accounts. One breach and your score could be impacted, even if you are not liable for the unauthorized charges. You also should also avoid from taking out any new loans or credit card accounts, especially in the months preceding your loan application.