It may seem like obvious advice, but there’s so much truth in it that it bears repeating: if you’re looking for affordable payments on your mortgage you need to raise your credit score. The good news is that there are many ways to do just that. Many consumers don’t realize that it doesn’t take as much time as they think to boost their score. Let’s take a look at the effect a higher credit score can have on mortgage rates.
More than rates: FICO scores may be a bigger deal than you think
While most people know that their credit score will affect their interest rate, they don’t always know that it can also affect how much of a loan a person qualifies for. Not only can a poor credit score lead to paying thousands of dollars more over the course of the life of the mortgage, but a larger loan amount can be approved with a higher credit score. Homeowners should never settle for less than they need just to avoid some simple steps that can improve their credit.
Three factors that affect how much interest you’ll pay
Your specific interest rate isn’t the only thing that will affect how much you’ll be in interest over the course of your loan. That amount will be figured based on how much money you borrow, the length of your loan, and the interest rate you’re offered and accept. This interest rate is highly dependent on your credit score, though income and other factors also come into play.
There are three credit bureaus (Experian, Equifax, and TransUnion) each of which collects information about you and your history of taking out credit and paying it back. They then compile their findings in a report, and a score is calculated. There are many formulas that can be used to calculate credit scores, but the most common is the Fair Isaac Corporation’s formula – otherwise known as FICO. These scores can be confusing, which is why it’s best to work with the professionals who can explain your specific scores in simple terms, along with the steps you can take to improve them.
As lenders consider your unique situation to come up with your mortgage rate, they’ll consider factors like your salary, how much you have in savings, your employment, and your debt-to-income ratio. Note that your credit score is one of the crucial indicators of the rate you’re likely to be offered. If your score isn’t as high as you’d like, then now is the time to find out how Leaf Credit Solutions can help.