If you’re buying a home, you might spend months negotiating with sellers to find the best asking price. While the sticker price of a house is important, the interest rate on the mortgage has a much bigger impact on how much you’ll pay in the long run. While many of the factors that affect interest rates are out of your hands, you can control one of the most important ones: your credit rating.

How Credit Ratings Affect Your Mortgage Costs

Understanding Credit Scores

Your credit score is essentially a risk assessment that lenders use to determine how likely you are to pay back a debt. Using detailed formulas, credit reporting agencies balance a number of factors — such as your history of on-time payments, the amount of available credit you have, and the ratio of debt to income — to quantify your creditworthiness. The typical American's credit score is around 704.

Credit Scores & Mortgage Rates

The interest rate you’re offered depends partly on the lender’s perceived risk. Thus, lower scores usually translate into higher costs. A home buyer with a credit score of 700 might get a 4.4% interest rate, while someone with a 690 might have to pay 4.96%. While this may not seem like much of a difference, it can add thousands of dollars to the price of your home.

How to Boost Your Credit Score

Increasing your credit score takes some time and financial discipline, but the effort pays dividends in the long run. First, get a free copy of your credit report and look it over for errors, such as loans that have been paid off or debts that don’t belong to you.

Next, make sure you’re paying your bills on time. Many checking accounts offer autopay options. While you run the risk of incurring overdraft fees if your balance is low, it’s a convenient and reliable option that will help boost your credit score. Paying down credit card balances and credit card debt will also help. Even if you can only bring your score up a few points before applying for a mortgage, that improvement can make all the difference.

Finding the right mortgage loan for your next house doesn’t have to be stressful and confusing. As an experienced loan officer dedicating to helping families throughout St. Peters, MO, get the best financing possible, Dan Main will walk you through the options, explain the differences between loan packages, and strive to ensure you get the lowest interest rates available. Visit his website for information about his mortgage packages, follow his Twitter for news and updates, or call (636) 284-4144 to make an appointment today.

Dan Main: NMLS # 502036
Flat Branch Home Loans NMLS # 224149
947 Waterbury Falls Dr
O’Fallon, MO 63368
This is for informational purposes only and not an offer to lend or extend credit.