Even if you’re just in the “thinking about it” stage of buying a house, it’s never too early to take a look at your credit score.
Why? The higher your credit score, the lower an interest rate you’ll get on your mortgage. This can save you literally thousands of dollars over the life of your mortgage.
Entrepreneur magazine offers a scenario of just how much you can save. You’re looking to buy your first home with a $500,000, 30-year fixed loan. If your credit score is 620 you’ll be able to get a loan at 5 percent interest, with monthly payments of approximately $2,685. At the end of those 30 years you’ll have paid $966,600.
However, with a credit score of 760 your interest rate is 3.5 percent with payments about $2,245 a month. At the end of 30 years you’ll have paid $808,200. That’s a savings of $158,400.
Credit scores range from 300 to 850. You should shoot for a 760 or higher credit score for the best interest rates. A score below 620 is subprime, with a higher interest rate.
There are five factors that determine your credit score, says Entrepreneur:
- Payment history, that is, whether you pay your bills on time - 35 percent of your score.
- Total amount you owe, which should be less than 30 percent of all the available credit on your credit cards - 30 percent of your score.
- Length of your credit history - 15 percent of your score.
- New credit, like opening a new credit card account - 10 percent of your score.
- Type of credit you have - mortgage, credit cards and car loans - 10 percent of your score.
Work toward keeping in line with all the above factors, and your should raise your credit score, allowing you to pocket huge savings.
ReMax Real Estate Concepts
120 N 2nd Avenue West
Newton, IA 50208