When buying a home, your credit score has a significant impact on your monthly mortgage payment. Generally, the higher your credit score, the lower the mortgage rate you may be able to qualify for. Likewise, the lower your credit score, the higher your mortgage rate. Your mortgage rate is one key factor that determines the amount of your monthly mortgage payment, along with the purchase price of your home, your downpayment, the term of your mortgage and the cost of insurance.
Here’s an example from credit-scoring company FICO®*. A home buyer with a credit score between 760 and 850 who qualifies for an annual percentage rate (APR) of 4.258 percent would pay $1,477 per month in principal and interest on a 30-year fixed-rate home loan of $300,000. The same borrower, but with a lower credit score of 700 to 759, might qualify for a higher APR of 4.48 percent and have a higher monthly payment of $1,516. A borrower with a credit score of under 640 (if they qualify at all) could have an APR of 5.847 percent, or a monthly payment of nearly $1,769 per month.
What is the best way to improve your credit score? Here are some tips.:
Check your credit report. Your credit score is based on information contained in your credit report. Studies show that many reports contain errors. You can order a free copy of your credit report by going to this link. Thoroughly go through the information in your report and request that any inaccuracies be corrected.
Make payments on time. Whether it’s your rent payment, your student loan payment, your credit card payment or any other financial obligation you have, making payments on time is one of the most important things you can do to raise your credit score over time.
Pay down your debts. Using only a portion of the credit that is available to you also can help raise your credit score. Likewise, using all or most of your available credit can lower your score.
*FICO® is a registered mark of Fair Isaac Corporation