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Advice
Posted in: Buying a home, First time homebuyer tips, Getting a mortgage

How your credit score affects your mortgage

Credit score and mortgage rates

When you are purchasing a home, it’s important to consider all the factors that comprise your mortgage payment. One factor within your control is your credit score – if you have a high credit score, you will likely be granted a lower interest rate on your mortgage. Read on for tips on how to heighten or maintain your credit score as you are buying a home.

First, it’s important to understand that your credit score represents your money habits, including your bill payment history, current debt, and your credit history. As payment history comprises 35 percent of your total credit score, it’s important to pay your bills on time and in full. The second highest factor is your total debt, so paying down your credit cards or other loans can positively impact your credit score.

In addition to the factors listed above, your credit score will decrease any time you open new lines of credit, so avoid opening new credit cards when you are searching for or buying a home. It is smart to avoid big purchases as you are home searching too, whether you are paying for them in full or purchasing them on credit.

While you may have a house budget in your head based on the money you have saved for a down payment and your total income, it’s important to get a mortgage pre-approval from a lender before you begin your home search. A pre-approval is the estimated price of what you can afford, and it takes into account your credit score and other financial information. A mortgage pre-approval not only helps you limit your home search, it can also make your offer more appealing to sellers who want to speed up the closing process.

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