Your credit score has more of an impact on your monthly mortgage payment than you might think. Generally, the higher your score, the lower the mortgage you may be able to qualify for. And the lower your credit score, the higher your mortgage rate.
Credit-scoring company Fair Isaac Corp. has an example: 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 credit score of 700 to 759, would qualify for a higher APR of 4.48 percent and have a higher monthly payment of $1,516, while a borrower with a credit score of under 640 could have an APR as high as 5.847 percent, or a monthly payment of nearly $1,769 per month.
Your mortgage rate depends on a number of factors beyond your credit score, of course. Your monthly payment can vary depending on how much of a down payment you can make, whether you’re purchasing a primary residence or second home, and the type and term of your mortgage.
But credit scores undoubtedly are a big factor and improving your score can save you thousands, even tens of thousands of dollars over the life of your loan. What is the best way to improve your credit score? Here are some tips from Fair Isaac Corp.:
Check your credit report. Your credit score is based on information contained in your credit report. Many reports contain errors. You can order a free copy of your credit report by going to this link. 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 monthly 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 can help raise your credit score. Likewise, using all or most of your available credit can lower your score.