How Your Credit Score Impacts Your Interest Rates
Having a strong credit score can open many doors that allow you to achieve your financial goals. A good credit score not only helps you get approved for a mortgage, buy a car or open a credit card — it also helps you qualify for lower interest rates. The better your credit score is, the more access you may have to financial deals and perks, like lower interest rates.
How Lenders Use Credit Scores
Credit scores give lenders a quick measurement of your credit risk which allows them to determine if you’re a good candidate for a loan. Scores typically range from 300 (the lowest) to 850 (the highest). Each lender is different but generally speaking, a score of 700 or higher could be considered a good credit score. If you’re looking to apply for a loan, check your credit score first. A high credit score could help you score a high credit line — and a low-interest rate.
What influences your credit score?
Several factors like payment history, the amount owed, length of credit history, credit mix and new credit influence your credit score.
To learn more, take a look at this Best Egg blog: What Does a Good Credit Score Look Like?
What is a Good Credit Score for Buying a House?
Just like any other loan, a good credit score may help you get approved for a lower interest rate on a mortgage. If you have a low credit score, there could be some options that will help you get approved for a mortgage but the interest rate could be higher.
- A popular mortgage loan option for people with good credit.
- Minimum credit score required: 620
- Ideal for people who have lower credit scores or little cash for a down payment.
- Approximate credit score required: 580
- Designed for people who wish to purchase a home that costs more than traditional loan limits.
- Approximate credit score required: 700
- A mortgage program offered to veterans and active service members, with zero down payment.
- Approximate credit score required: 620
- Offered to low-income borrowers who are looking to buy a home in a designated rural area.
- Approximate credit score required: 640
What Rate Can I Get With My Credit Score?
Take a look at how a high credit score can save you money on a mortgage loan.
5 Tips to Improve Your Credit Score
- Pay your bills on time: Missing monthly payments could lower your credit score. Stay on top of them and simplify your life by setting up automated payments, scheduling reminders to make payments or consolidating your debt with a personal loan.
- Keep balances low: The amount you owe versus your available credit is the second most important factor in determining your credit score. Another way to potentially boost your credit score is to pay down balances by consolidating debt with a personal loan.
- Keep a good mix of credit: Lenders like to see that you can manage and make payments on multiple types of loans like credit cards, mortgages and auto loans. Having a good mix of credit and a solid payment history on multiple accounts could help improve your credit score.
- Don’t close old accounts: The length of your credit history is also considered in your credit rating. So, it may make sense to keep some of your older accounts open — even if they’re inactive.
- Be cautious about opening new accounts: Having too many credit inquiries or opening too many accounts in a short period of time could imply that you’re a high risk to lenders, which may negatively impact your credit score. Remember a good credit score can help you get approved for a low-interest rate on a variety of loans including a mortgage.
Remember a good credit score can help you get approved for a low-interest rate on a variety of loans including a mortgage.