How Does Credit Score Affect Mortgage Rates?

When buying a property, the interest rate of your mortgage will impact the total price that you’ll pay throughout the duration of your loan. A borrower’s credit score directly affects mortgage rate costs, and generally the higher a borrower’s credit score is, the better mortgage rate they will qualify for. If you are interested in purchasing a home in Palm Beach, Tri-County, or Broward County, Florida, and have questions about home financing and applying for a loan, CTC Mortgage can assist you. Continue reading to learn more about how your credit score can affect your mortgage rates.

Understanding How A Borrower’s Credit Affects Mortgage Rates

Credit scores are a major factor when applying for home financing, and affect the amount of money you will be able to borrow, the kind of mortgages you will be able to be approved for, the price you will have to pay for private mortgage insurance, and ultimately the mortgage rate you will have to pay. Since mortgage lending operates on risk-based pricing, a lender will increase the price of a mortgage for each risk that is associated with your credit profile. Subsequently, the lower your credit score is, the higher your mortgage rate will be, resulting in having to pay more money over the life of your loan. Conversely, having a higher credit score demonstrates to lenders that you are likely to make your monthly loan payments on time and fulfill your financial obligations. Your credit report will include the history of your payment habits with borrowed money, and will take into account the length of your credit history, the balance of your credit cards, and the overall amount of debt that you still owe.

Making Improvements To Your Credit To Get A Better Interest Rate

Even a small change to your credit score could make a substantial difference in the interest rate you could obtain, which could save you a great deal of money. Some steps you can take to improve your credit include:

• Keeping your accounts open – Even if you have paid off a credit card, it is advisable to not close out the account so that the credit line increases. Having a higher credit limit helps to improve your credit score, however it is critical to avoid accruing more debt with the paid off account.
• Paying down your credit cards – Prioritize paying off your loans with the highest interest rates first, and try to pay at least the minimum payments on other debt amounts.
• Monitor your credit score closely – Check your credit regularly to ensure there are no errors and that you have not had any fraudulent charges as any error can affect your score.

If you’re interested in buying a home and have questions about home financing in Palm Beach, Tri-County, or Broward County, Florida, contact CTC Mortgage today for a consultation.

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