Your credit report can be your biggest ally during the home loan process. A strong report leads to better interest rates and more funds available for your next home purchase, while a weak credit report can make borrowing more expensive. So what does your credit report say about you?

Your credit report is based on something called a FICO score. The typical FICO score is based one-third on your payment history, one-third on the amount you owe, and another third is based on other factors like the length of your credit history, amount of new credit, and types of credit in use. It all comes down to how you manage your credit.

Scores range everywhere from 300 to 850, but most will fall in the 600s to 700s. Naturally, people with higher scores get better interest rates and have more options when applying for mortgage loans. How does this affect you? We’ve penciled out an example to illustrate the potential differences to your bottom line. Say you had a FICO score of 780 and were able to get a mortgage rate of 5.92%, which was a rate available in early 2007. 780 is a great score. But even with a few blemishes, a lower score of 675 might have earned a rate close to 6.5%, while a lower score like 630 might have gotten you a 7.5% mortgage rate. When you stack these side by side for a $250K mortgage loan, the person with the 780 score saves over $3100 per year compared to the person with the 630 score. A great FICO score makes a huge difference.

Here are a few suggestions for getting the best rates available:

  • Make sure you are current on your bills. Remember that payment history accounts for 1/3 of your total score.
  • Keep balances low on revolving credit card accounts. Higher balances will lower your score.
  • Contact us early in your evaluation process. We can counsel with you to find the best loan package for your circumstances. Even with a lower credit score, many borrowers are often surprised to discover the variety of loan programs available.

With a little due diligence today, you open the door to greater financial freedom down the road. When you are ready to evaluate your credit options, give us a call and put our knowledge and expertise to work for you!