The Lower The Score, The Higher The Rates
Any potential consumer who is contemplating purchasing a home, or even refinancing their existing one, needs to understand how incredibly important their credit rating is in the loan evaluation process. The credit score is the basis for lending institutions and banks to determine a borrower’s creditworthiness, which therefore establishes the rate of interest they will be assessed for the loan, or even the eligibility to qualify. In simple terms, the lower the credit score is, the higher the mortgage interest rate. It all boils down to the level of risk. Statistically, those with low credit scores are more likely to default on their mortgage, so loan approval or eligibility becomes that much more difficult as a result of more stringent requirements.
The best strategy for any home buyer is to access their credit scores long before they begin their search for lending options, or even looking for the prospective home itself. This is for two primary reasons. The first being just how long it takes to actually acquire the credit reports from each of the credit reporting bureaus (Equifax, TransUnion and Experian), and determining whether or not any changes, corrections or improvements need to be made, and this takes a bit of patience, and time. Getting reports from all three agencies is important because mortgage lenders will typically evaluate a potential borrower’s creditworthiness by merging those scores into one basic number, or ‘mid-score’.
Naturally, the better that number is, the better chances for loan approval, and with an affordable interest rates. In general, any potential home buyer needs to have a credit rating of at least 720 to keep from having any negative pricing adjustments factored into their mortgage. This will certainly reflect on the monthly payment structure, the amount of interest applied to the loan, and even how much funding the bank or lending institution will consider for approval. The better the credit score, the more affordable the offer will be, with the best possible terms.