Jake's Lending Tip of the Week
The most important variable when determining the interest rate on a mortgage is your credit score. The difference between a score of 710 and 740 can be stark. Our Tuesday Rate Update highlights just how stark (below). Credit can be a real mystery for many, so this week’s Lending Tip focuses on the basics.
The higher the credit score, the better the rate. For mortgages, credit scores fall into tiers of 20 point increments up to 780 (i.e. 640-659, 700-719, etc.). For nearly all mortgage types, the top tier is 780+.
You are probably asking, “What determines my credit score?” According to Investopedia, there are five factors that play a role:
·????????Payment History (35%): Do you pay on time?
·????????Amounts Owed (30%): What percentage of your total available credit are you utilizing?
·????????Length of Credit History (15%): How long have your accounts been open and utilized?
·????????New Credit (10%): Did you open a large amount of new credit recently?
·????????Types of Credit (10%): Is your debt in the form of credit cards, installment loans, or mortgages?
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Unfortunately, the credit bureaus are a bit of a “black box” when it comes to your credit score. While we know they utilize these factors to determine the score, there is no breakdown available to you. My advice to clients preparing to get a mortgage is to make your payments on time, and not to open any new credit.
If you are unsure of what your score currently is, you are entitled to a free copy of your credit report once per year. There are numerous sites that will provide this to you.
If you have any questions about your current situation, do not hesitate to reach out!
If you are interested in seeing the Tuesday Rate Update weekly, follow us on Instagram at @jakegolembiewski.?