When reviewing mortgage applications, credit score for mortgage plays a very vital role. Borrowers who seek mortgage have to keep a watch on their credit report throughout the year. Higher the score in the report, higher are the chances of getting the loan, because the lender thinks you are at a less risk of default.
Borrowers with score above 700 are offered with more loan options at reduced interest. But even if your score is less, do not fret! – There is a mortgage product for almost everyone. An ideal FICO (Fair Isaac Corporation) credit score for mortgage is 700 and above. However, a score of about 500 to 520 is the minimum score that qualifies for a mortgage.
Credit score and Mortgage
Equifax, Experian and TransUnion, the three credit bureaus, have together developed a new scoring system – The Vantage score. Not so expensive, the Vantage reports are available at a lower cost as compared to the old standard score FICO (Fair Isaac Corporation). However, a lot of mortgage lenders look nothing but FICO scores, while considering your mortgage application. If you are aiming for good credit score for mortgage as a borrower, try to buy FICO scores. According to the FICO mortgage rates, the top tier ranges among 760 and 850 with about 5.780% interest rate and more loan choices. Next tier is around 700 to 759 with 6.002% interest and 660 to 699 tiers with 6.286% interest. A score below 620 comes in subprime category. The interest rate here is a bit higher and the loan choices are few. The interest is about 7.093% for 620-659 tier followed by 8.583% for tier around 580 to 619. Finally, a FICO score around 500 to 579 is considered the minimum score to qualify for a mortgage. And no wonder it has the highest percentage of interest which is 9.494%.
Improving your Credit Score for Mortgage
No matter how bad your credit score was in the past, you can always improve it by timely payments. Getting rid of debt is the best way to score up. Further if you want to advance your credit score for mortgage, take care to improve the following factors that compose the FICO score – History of Payment, The Length of Credit History, Total Amount Owed, New credit and the Type of credit in use. Payment history and total amount owed together sums up to 65% while the remaining three constitutes remaining 35%. So, if you are really looking to improve your credit score you will have to first tackle these points.
Benefits of Better Credit Score
With good credit score comes good loans with better terms. If you have a good credit score for mortgage, you are automatically eligible for loans. Lenders will readily offer you with great varieties of loans since you are at a lesser risk. Hence, if you want big loans like home loans or car loans, a good credit score can eventually save thousands of dollars for you.
For good credit score for mortgage, start from the basics. Make sure that you pay all your payments timely and reduce your overall debt. This will definitely make an impact on your FICO score to grab a good loan with reduced interest!