How to build your score to get a lower interest rate
MORTGAGES | MARCH 18, 2021 | TODD SCHULTZ
Whether you’re thinking about purchasing a new home or refinancing your current mortgage, here are some tips to consider that may help keep your payments as low as possible. Lenders look for borrowers who have these three things:
- Low debt-to-income ratio – what you owe compared to what you earn
- Strong financial history – listing on-time and at least minimum payments
- High credit score – showing your payment habits with borrowed money
If you struggle with any one of these three items, it might not impact your ability to obtain a mortgage loan, but it might affect the interest rate that you pay on the loan.
I’ve worked with many customers who needed to shore up their financial history to get into a home loan. Here are some of the most common tips that I’ve provided over the years to help them improve their credit:
- Make payments, including rent, credit cards, and car loans, on time
- Keep your spending to no more than 30% of your limit on credit cards
- Pay down high-balance credit cards and consider balance transfers to free up credit
- Check for any errors on your credit report and work toward fixing them
- Shop for mortgage rates within 30 days—too many spread-out inquiries can lower your score
- Work with a Peoples mortgage lender to build your credit
I tell many of my mortgage customers that lenders often rely on your credit score to help determine whether you will be able to pay back the mortgage. The higher your score, the more assurance for the lender that you can handle the home loan payments.
With a high credit score, you’ll receive better terms for your mortgage or refinance. Lenders can set their own levels, but typically a borrower with a credit score of 740 or higher will receive the best interest rate on a mortgage. A 100-point drop in credit score could mean the difference of a half percent or more interest rate increase.
And don’t be surprised to see your credit score take a small hit after you receive a new home loan. Your credit score is based on your ability to pay back a debt. When you purchase a home—often one of the largest loans you’ll ever have—your credit score will go down until you prove that you have the ability to pay back the loan.
When that happens, it may impact other borrowing until the lender sees you are responsibly paying the home loan.
If you find yourself with a lower credit score than you’d like, it’s good to set up an appointment with a mortgage lender to go over your options. There are many types of mortgage loans available; some meant to help first-time home buyers and those who have lower credit scores. Contact a Peoples State Bank mortgage lender in your area to set an appointment.
Todd SchultzAVP | Mortgage Lender NMLS# 642092
Put Todd Schultz and his more than 20 years of mortgage lending experience to work for you as you look to purchase your dream home or refinance your current house. He’s proud of helping satisfied customers improve their credit scores and obtain the home loan financing needed to get them into their dream homes.
715.847.4102 | todd.schultz@bankpeoples.com | Connect on LinkedIn