Do I Have A Good Enough Credit Score for the Best Mortgage?
Credit Score Tiers
It’s important to understand that mortgage lenders categorize credit scores into tiers, so it’s more significant to know which tier you fall under than the exact number of your credit score. In general, credit scores under 579 are poor, 580-669 are fair, 670-739 are good, 740-799 are very good, and 800-850 are excellent.
A lender will consider you as an application based on which category your credit score falls under, so it makes sense to find out what your score is and how close you are to bumping it up to the next tier.
For example, if you have a score of 720, it’s worth the time and effort required to bump that score up over 740 in order to be considered someone with “excellent” credit. In general, a credit score over 700 is likely to secure you a good interest rate, but anything in the “very good” or “excellent” category is a good enough credit score for the best mortgage terms your lender has to offer.
Additional: How to Calculate Mortgage Closing Costs
How Much Do Terms Vary Based on Credit Score?
Some terms are more or less set from a lender, like lender fees and appraisals. Other costs will vary based on a few factors, with credit score being one of the major considerations. Having an excellent credit score for the best mortgage usually means a lower interest rate, which is arguably the most significant item on your loan.
Remember, a lower interest rate is often more important than the price of the home itself when it comes to your monthly payment. For example, an interest rate difference of just 0.5% on a mortgage for a home worth $300,000, with a 20% down payment, going from 4% to 4.5%, will add up to a whopping $744 per year. That's over $20,000 more in interest just for having a lower credit score. With that in mind, it makes sense to do what you can to have the best credit score for the best mortgage.
How to Raise Your Credit Score
If you’re realizing that you need to raise your score a bit in order to get the mortgage you want, now that you know what is a good enough credit score for the best mortgage, there are plenty of tips for raising your score that will be worth your while.
A few things you can do to get started are paying down balances to lower your utilization rate, asking for an increased credit limit to positively change your utilization rate, setting up autopay to make sure your payments are being made on time, and bringing any past due accounts up to date. If you are ready to make the next move, we're here to help.
For more information, contact us today to begin your journey toward buying a home!