All mortgage rates are not created equal, which is why that great advertised rate is not usually the rate a borrower is quoted after his or her credit is pulled.
Credit scores weigh heavily with lenders when you are applying for a loan. The better your credit score, the easier to get a mortgage and the lower the rate you will pay. Conversely, a low credit score will cost you money and possibly make it difficult or impossible for you to qualify.
What Score Does a Mortgage Lender Use?
When you apply for a mortgage loan, the lender pulls your credit from all three major credit bureaus, Experian, Equifax and TransUnion. Each credit scoring agency uses slightly different scoring calculations and the reports may contain different information. This is why the three credit scores are rarely, if ever, exactly the same.
For mortgage qualification & approval purposes, lenders use the middle of the three credit scores. They use the actual middle score, not an average of the three scores. So if your scores are 690 from Equifax, 710 from TransUnion and 720 from Experian, the lender will use the 710 score.
How Does the Credit Score Affect the Rate?
It’s not just about qualifying for the mortgage. Your credit score directly affects the interest rate you will pay.
A borrower with a score of 740 will be eligible for a lower interest rate than a borrower with a score of 680. Scores as low as 500 can qualify for a mortgage, but the borrower would have to have compensating financial factors such as a substantial asset base or significant (documentable) income. Realistically, a credit score in the 500’s will be very hard to overcome when applying for a mortgage. And if you do, it will come with a cost in higher upfront fees and a higher interest rate.
Generally, mortgage loan rates and fees change at 20 point intervals: 740, 720, 700, etc. And near misses don’t count. A credit score of 619 will cost you more than a score of 620.
Clean Up Your Credit before Applying for a Mortgage Loan
If you are even considering applying for a mortgage, check your credit report now.Improving your scores can take some time to accomplish, so start early.
You can get your credit reports for free once per year at: www.annualcreditreport.com . (There is a fee for purchasing your credit scores at the same time.) Check all three reports, not just one.
Many credit reports contain errors and those errors can take some time and effort to correct. Follow the instructions for correcting errors and follow up to make certain anydisputed information has actually been removed or corrected.
Learn How to Improve Your Credit Scores
In addition to correcting any errors, be strategic and look for ways you can improve your score, such as, paying down or paying off credit cards. (Closing credit accounts can negatively impact your score, so proceed with caution on that decision.)
The credit rating companies have online tools that can help you assess what the impact will be of various credit improvement tactics. Look for this scoring calculator on their sites when you pull your reports as it can help show you the best ways to improve your credit scores.
You’ll be making mortgage payments for a long time, so small differences in interest rates can save (or cost) you a great deal of money over 10, 20 or 30 years.
via:http://askconnyrealestate.com/2014/02/impact-credit-scores-mortgage-rate/
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