Obtaining a low mortgage interest rate can help you save money on the price of your home. While many people try to compare lenders to secure the best possible rate, one of the main determinants of a mortgage rate is your credit score. Borrowers with higher scores are more likely to receive a lower rate than those with lower credit scores. Most lenders view a potential home buyer with a high credit score as more dependable and less likely to default on mortgage payments.
What is considered a “high” score?
The highest score a person can have is 850. However, it’s unusual for someone to have a perfect credit score. Most home buyers should aim for a score of 740 and above to qualify for the lowest available mortgage rate. If your credit score goes below 620 it can be difficult, though possible, to get a mortgage as well as a favorable rate. For an approximate breakdown, here is a range of how credit scores are judged:
Excellent = 740 and above
Good = 700 –740
Fair = 660 – 699
Poor = 659 and below
If you are considering a Conventional loan, you will want to have a credit score as high as possible. Once your credit scores dip below 740, the rate at which you qualify for may be higher for every 20 points below 740 you are. At a certain point, Conventional financing may not make sense anymore due to higher rates based on a lower credit score.
Can I still obtain a loan with a low credit score?
If you know your credit score isn’t stellar, it doesn’t necessarily mean you cannot qualify for a mortgage. For example, an FHA loan is a popular loan type among first-time home buyers which accepts less than excellent credit scores. When you begin the mortgage process, we will review your credit assess the loan options that make sense with you.
Finding your credit score
A credit report is typically comprised of three different scores reporting from the three different reporting bureaus: Equifax, Experian, and TransUnion. Each bureau will give you a different credit score based on their individual scoring models.
There are many different credit scoring models available today, so the consumer sites that offer credit score information or credit scores that are provided by credit card companies online are not 100% accurate and could be very misleading to consumers looking to qualify for a mortgage. We have seen in many circumstances where customers were led to believe by their credit monitoring service that they had a credit score 50-100 points higher than the actual credit score when we checked their credit. The biggest reasons for these discrepancies are that a completely different scoring model was likely used and perhaps only one credit score was provided. For lending purposes, the middle of the three credit scores is always used for rates and qualifying purposes.
Once we have checked your credit and thoroughly reviewed your credit report, we can make suggestions to help you correct errors if that is needed. If your credit is already excellent, we’ll advise you to keep doing what you are doing already. We will also be able to issue you a copy so that you can review your official credit report for accuracy.
It’s always a good idea to check your credit annually for accuracy, but if you are qualifying for a home loan and you wish to have an accurate credit score assessment, feel free to reach out to us.
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To obtain your free annual credit report, you can go to Annualcreditreport.com