Check Your Credit Long Before Applying for a Mortgage
I previously wrote about advertised mortgage rates differing from what you might receive at the closing table, and now I’d like to focus on credit scoring impact.
There are a number of mortgage adjustments that can push your interest rate higher or lower, but one of the most important and perhaps far-reaching is credit score.
Banks and mortgage lenders will not only charge you a higher interest rate for having a lower credit score, but you could be flat-out denied if your credit isn’t up to snuff.
Additionally, your interest rate may be bumped up several times as a result of a less-than-perfect credit score, depending on the nature of your home loan.
So what could have been a 4.5% interest rate could end up in the 6% range or higher.
For that reason, it’s imperative to stay on top of your credit and take a hard look at it well before applying for a mortgage.
Be sure to order a credit report, via free trial or through the government’s free program (the latter doesn’t include a free credit score) months before shopping for a new home or inquiring about a refinance.
Any nasty credit surprises could throw a huge wrench in the deal, so knowing well in advance if credit repair is necessary is priceless.
If you’re curious where you stand credit-wise, check out my credit score range, which explains in detail why your credit score is what it is and what you can expect to receive in terms of loan approvals and interest rates.
Generally speaking, credit scores of 740 and above are exempt from interest rate adjustments, and could actually result in savings on the mortgage rate you receive.
Credit scores below 620 are typically considered “subprime” and will come with the highest interest rate, while scores between 660 and 720 may fall under the “Alt-A” distinction and result in slightly higher-than-prime rates.
To sum it up, your credit score is something you can control, unlike down payment or transaction type, so keeping it healthy should be a top priority.