You cannot control some things regarding your mortgage interest rate, like the state of the economy, real estate market trends, and Federal Reserve interest rate hikes. But there is one thing under your control: your credit score.
A credit score is an algorithm your potential lender uses to predict your ability to pay off your mortgage. Andrew Nuntapreda, “The Credit Ninja” with Louviers Mortgage Group, LLC (NMLS 2080752), says, “A good credit score shows an ability to pay your bills on time. A bad credit score shows the opposite.” There are 5 main components that make up a credit score:
Payment History: Do you regularly pay your bills on time?
Amounts Owed: The percentage of your credit balance owed against your credit limit
Length of Credit History: The length of time you have been paying credit card bills and repaying loans
Types of Lenders: It is good to have various lenders like credit cards, mortgages, car payments, etc.
Frequency of New Credit Applications: Applying for multiple lines of credit in a short period of time is not conducive to a credit score.
If you’re unable to pay your current bills, the potential lender predicts you will have a hard time paying off a new mortgage. Essentially, the lender assumes more risk by granting a loan to a borrower with a lower credit score. Therefore, the borrower will be subject to higher interest rates. But do not panic! There are ways to improve your credit score. Watch for an upcoming “Chadwick’s REAL Tips” video to learn how.
For further information about credit and credit scores, please contact:
Louviers Mortgage Group, LLC ®