How Does My Credit Score Impact My Mortgage Interest Rate?

How can your credit affect your mortgage interest rates? Learn the secrets of how your credit scores impact your rates and how you can lower it.

Lately, with the whole economic crisis and the housing meltdown it has been harder to get and qualify for mortgages. Just few years ago, almost anyone could buy a house or qualify for a mortgage with no money down. However, those times are long gone and it is much tougher to get a mortgage nowadays.



What are the Main Criteria for a Mortgage?

One of the main criteria for getting a mortgage is having a great credit score. So, you might ask “how does my credit score impact my mortgage interest rate?”. Credit scores range from 400 to 850. Most mortgage companies require a minimum of 620 credit score to be considered what is called an A or Alt-A borrower. However, there are groups withing these credit scores which affects your interest rate. Below 620 is considered sub prime loans and are very hard to get and carry huge interest rates.

Credit Scores and Mortgage Interest Rates:

The way your credit score determines your mortgage interest rate is by using ranges. For example, if you are between 620 and 680 your interest rate might be prime + 3%. If your score is between 680 and 720 it might be prime + 2%. If you are above 720 you might just get prime +1%. Prime rate is directly related to the interest rate set by the Federal Reserves. As mentioned earlier, below 620 you can expect to pay prime + 5% or more.

Credit Bureaus and Your FICO Scores:

There are three major credit bureaus in the United States. They are Equifax, Transunion and Experian. Mortgage companies use the data from these bureaus to get what is called the FICO score (a model developed by Fair Isaacs and Co.). Typically, your middle score is the credit score that is used for qualification and mortgage interest rate purposes. Small variations in the credit score and interest rates can have a huge impact on your monthly payments. Therefore, use your credit wisely and save on your mortgage.

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  3. Will Refinancing My Home Loan Affect My Credit Score?
  4. What Is The Average Credit Score For A FHA Home Loan?
  5. How Does Bond Interest Rate Affect My Mortgage Interest Rate?



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