How credit scores impact your mortgage rate by Sheyna Steiner, Bankrate.com (MCT) , Posted: May 17, 2014 Interest paid on a mortgage can add up to hundreds of thousands of dollars over the life of.
WASHINGTON – The higher your credit score, the lower the interest rate quote you’ll get on your mortgage, right. market conditions and competition also can affect the size of rate benefits to lower.
A higher credit score earns you a lower mortgage rate, which means you’ll save by paying less in interest. Scores of 720 and up earn the best rates on conventional mortgages.
Though the tiers go up all the way to 850 on the FICO scale, a score of 740 or more should qualify for the best mortgage rates from most lenders. Depending on the lender, the mortgage rates offered to the highest and lowest credit tiers can vary as much as a full percentage point and a half, says Spagnuolo.
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Credit scores at 720 or above are considered "excellent" and will help you obtain the lowest interest rate and best terms on a mortgage. Typically, the lower your score moves down the scale, the higher your interest rate becomes – especially when you start entering the mid-to-low 600’s.
To understand how credit scores affect your mortgage rate, first, you need to understand what a credit score is. A credit score is a number determined by credit reporting agencies that tells lenders how much of a risk you are for borrowing money.
A quarter-point increase on a $30,000 credit line raises the minimum monthly payment by just $6 a month. By contrast, rates on adjustable-rate mortgages are modified annually. So the impact may be.
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Credit scores directly affect mortgage rates. Lenders charge more interest for riskier borrowers. This is known as risk-based pricing. The higher the risk, the higher the cost for the borrower. Granted, credit scores are not the only factor that affect the interest rate.
People who have scores above 800 enjoy extraordinary credit card perks, low loan rates, higher borrowing limits, and other financial benefits that aren't offered .
Your credit score directly affects the mortgage rate for which you will be eligible on your borrowed money. Suppose you have a credit score of 800 (nearly perfect), and you hypothetically qualify for a good mortgage rate like 3.75%* on a fixed interest loan.