The Connection Between Your Credit Score and Mortgage Rate

Unfortunately, many consumers fail to make the connection between their credit score and mortgage rate until it is too late. When we’re young, we usually never think about the damage we unwittingly inflict on our credit score every day. It’s so easy charge up credit cards without a second thought and justify purchases that perhaps could have waited. Buying a home and taking on a mortgage loan seem so far into the future and we never think about whether we’ll actually be able to qualify for a mortgage loan when the time comes.

Then, suddenly it’s ten years later and we’re sitting across from a mortgage lender with a very stern expression, listening to the word ‘no.’ How did this happen, we ask ourselves? ‘I thought I had great credit.’

The connection between your credit score and mortgage rate begins from the moment you open your first bank account or get your first credit card. There are a number of factors that can influence your credit score and eventually prevent you from owning a home, but there are some that are more influential than others. Understanding the credit score process early on can prevent much disappointment late.

There is nothing wrong with having a credit card, per se. A credit card can be quite handy to have in emergencies, and in all honesty, it can be difficult to build a good credit score without one. This is why it is so important to use your credit wisely. Limit yourself to one or two credit cards and keep those paid down to about 75% of the maximum credit limit. Make sure that you pay your credit card bills on time and avoid switching and transferring balances back and forth between cards. This is a strategy that many consumers attempt to use in order to obtain better interest rates on their credit cards, but in actuality, all this does is harm your credit score.

Avoid opening a multitude of revolving credit accounts. This includes credit cards and department store cards. Fuel and gasoline credit cards can also affect the number of revolving credit accounts that are under your name. Don’t ‘shop’ around for good credit card rates by filling out a number of applications. This practice can count against you when it comes time to apply for a mortgage loan.

Finally, constantly be aware of the level of your outstanding debt, especially credit card debt, in relation to your income. This can significantly lower your chances of being approved for a mortgage loan.

Understand that even if you are able to be approved for a mortgage loan in the future, your credit score can and will effect the mortgage interest rate offered to you. The attractive low interest rates that are often advertised are generally reserved for consumers with great credit scores. Make sure you aren’t penalized with high mortgage rates later on by paying attention to your credit score today.