Credit Scores and Mortgage Rates
When you’re searching for mortgage rates keep in mind that your credit score plays a huge role in mortgage lender quotes. Here are some things to remember about credit scores and mortgage loans.
High Credit Scores Result in Lower Mortgage Rates
You probably already know that having excellent credit means you are offered better deals on mortgage loans and home equity loans. The best scores are above 760, while scores in the low 600s means you’re considered a subprime borrower. Mortgage lenders consider people with scores below 600 extremely risky, and in today’s mortgage environment they are likely to be denied credit.
How FICO Scores Work
There are different credit scores out there. The three major credit bureaus all have their own proprietary system of determining credit scores. But the FICO score is probably the most widely used by mortgage lenders and other financial institutions. FICO scores are based upon:
- Your payment history, which makes up about 35% of the score
- How much your owe, which determines about 30%
- The length of your credit history, which determines about 15%
- How much new credit you have opened or applied for, which makes up about 10%
- Other things such as the types of credit you have, which makes up about 10%
Repairing Credit Scores
If you plan to apply for a mortgage refinancing or a mortgage to purchase a home, spend some cleaning up your credit first. Make monthly bill payments on time, pay down debt, and avoid opening new credit lines. Also, review your credit report to make sure that information is accurate, as well as to delete outdated information such as old liens, judgments, and discharged debt. Bankruptcies should be removed after 10 years.
Dispute Inaccurate Information
Dispute information by calling the credit bureau and by following up with a letter. Depending upon the outcome of your dispute you may have to contact the actual creditor who reported the information contained in your report. Keep careful notes of all interactions and correspondence with credit bureaus and creditors so you have a complete paper trail.
Fixing your credit can have several positive results that include receiving better loan terms on a mortgage and reducing the amount of deposits that have to be made with utilities.
Tags: home equity loans, mortgage lender, mortgage loans, mortgage rates
