The Critical Importance Of A Good Credit Score

Your credit health is the most important factor in deciding what interest rate you will pay on your mortgage, and the difference could be substantial.  Your credit rating’s impact is so significant that the difference could be in the thousands of dollars, just from a few points on your credit score.

Consider this example.  Let us take $200,000 as the price of a home.  Two buyers buy at that price and both take a 30-year fixed mortgage.  They both put 20% down (Loan Amount: $160,000).  One buyer has a low credit score of 620, while the other has a higher score of 760.  The one with the poor credit score will end up paying approximately $57,000 more in interest over the mortgage’s lifetime.

The factors used to calculate an individual’s credit score are credit payment history, current debts, length of credit history, credit type mix, and frequency of applications for new credit.  The different scoring systems are based on different criteria, weighted differently, so the three major credit bureaus in the U.S. (Equifax, TransUnion, and Experian) may produce different scores for an individual, even though the scores are based on the same credit report information.

Your current credit score is a huge issue in determining if now is a good time to house shop.  Having a good credit score before you take on a mortgage is an important factor.