Whether you are a first time home buyer or you’re a pro at purchasing homes, your credit score will always influence your mortgage interest rate. As you know, your mortgage payments have 4 components to it and interest is one of them. Based on the interest rates in the market, lenders have benchmarks for your credit score and the interest rate that will be given to you. It’s in everyone’s interest to pay less for the mortgage (no brainer).
By personal experience, my wife and I learned the hard way about how a credit score can impact your interest rate. When we purchased our first home, my credit score was in the upper 600s while hers was in the upper 700s. We figured, we got this because she had the best credit…
Not exactly…so when you apply for a joint mortgage, the lender provides you rates based on the individual with the lowest credit score. FML! We considered having only her apply but that would have brought down the total income on the application and it would not have turned out in our favor. So, we had no choice.
The lesson here is that this type of impact can happen to you even if you are the only applicant for the mortgage. Let me show you some examples of the rates as of August 8th. Here are the rates for a 30 year fixed mortgage for a $300,000 home and how it correlates with your credit score.
Do you see that increase in interest rate as the credit scores get lower? Here are the rates for a 15 year fixed mortgage for a $300,000 home:
I guess I’ve proven my point by now. The difference between these interest rates can mean thousands of dollars over the life of the loan! Your credit score can literally make your mortgage extremely costly in the long run.
Alright, so if you’re thinking to yourself “damn, I’m screwed” let’s not dwell on your current score and lets create a game plan. I’ve previously written a post about how I increased my credit score by 100 points within 1 year and I’m not even exaggerating this. Below were the steps I personally used, but I encourage you to read the full post here to get a clear understanding of the strategy.
Throughout this ramp up in my credit score, I used Credit Karma the entire way. It was accurate and simply the best tool I had because I felt like I was in control. Check out this post about Credit Karma.