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Key Takeaways
- A high credit score could save you thousands of dollars in mortgage interest payments over the life of your loan.
- Lenders consider your score an indicator of how likely you are to repay the loan.
- Consider taking steps to improve your score before applying for a mortgage.
Your credit score represents your overall credit history. It’s based on information in your credit report, including whether you pay your bills on time and the total debt you carry.
How Mortgage Lenders Use Credit Scores
Credit scores generally range from 300 (the lowest) to 850 (the highest). This number significantly influences whether you qualify for a mortgage and the terms you are offered.
A higher score increases a lender’s confidence that you will make payments on time, which may help you secure lower mortgage interest rates and fees. Additionally, some lenders may reduce down payment requirements for borrowers with higher credit scores.
What Credit Score Do You Need to Get the Best Mortgage Rate?
A High Score
A score of 670 or higher is considered good. Most mortgage lenders prefer a minimum score of 620 before approving conventional loans. In addition to your score, lenders will review your credit report, level of debt, and income.
A Low Score
If your score is below 620, you may still qualify for a mortgage backed by the Federal Housing Administration (FHA). However, FHA loans generally come with higher interest rates and fees.
Where to Find Your Credit Score
Many banks and credit card companies provide free credit scores through online accounts and mobile apps. If your bank doesn’t offer this service, you can purchase your FICO credit score at Myfico.com.
How a High Credit Score Could Save You Money
Let’s say you plan to get a 30-year fixed-rate mortgage for $300,000. Here’s how your loan could differ based on your credit score:
| Credit Score Range | APR | Monthly Payment | Total Interest Paid |
|---|---|---|---|
| 760-850 | 6.458% | $1,888 | $379,653 |
| 620-639 | 8.047% | $2,211 | $496,007 |
By improving your credit score, you could lower your monthly payment and save $116,354 in interest over the life of the loan.
Source: myFICO.com, October 2022. This example is for comparison purposes only and does not constitute a commitment to lend.
4 Ways to Boost Your Credit Score
Your credit score can change every month, and even a small increase can improve your mortgage options. Here are some tips to enhance your score:
- Pay all your bills on time. Timely payments contribute significantly to your credit score.
- Reduce your credit card debt. Lenders prefer that balances remain below 30% of your available credit.
- Check your credit reports for errors. Visit AnnualCreditReport.com for a free copy and dispute any inaccuracies promptly.
- Maintain old credit accounts and avoid unnecessary new ones. Closing old accounts or opening multiple new ones can impact your credit score negatively.
Need Mortgage Assistance? Contact Los Angeles Mortgage Lender Today!
Your credit score plays a vital role in securing the best mortgage rates. If you’re looking to buy a home or refinance in Los Angeles, we’re here to help! Contact Los Angeles Mortgage Lender for expert guidance and competitive mortgage options.
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