Mortgage borrowers: Good credit is more important than everby Tim Manni
Now more than ever, credit scores are especially important to mortgage borrowers. If you’re a mortgage borrower with a poor credit score, your financing options are vastly limited. Besides the FHA, which still has financing available for borrowers with below-prime scores, the private market has shown little interest for borrowers without pristine credit.
The good news is that there are ways you can improve your credit before you apply for a home loan.
A new consumer guide
Earlier this month, The Federal Reserve released their “Consumer’s Guide to Credit Reports and Credit Scores” as a way to educate consumers on not only the ins and outs of how their score is calculated, but why it’s so important:
Mortgage lenders, banks, insurers, utilities, employers, and other businesses may obtain credit reports from credit bureaus to assess how an individual manages their financial responsibilities. Consumers need to know what’s in their credit report and understand how negative information, such as late payments or a bankruptcy filing, might affect a lender’s decision to grant credit. The guide answers questions ranging from “What is a credit score?” to “How can I get a free copy of my credit report?” to “How long does negative information stay on my credit report?” It contains tips to help consumers improve their credit scores and provides step-by-step instructions for correcting an error in a credit report.
Lower score = higher rate
In today’s tight economy, more than 25 percent of consumers — an estimated 43.4 million people — have a credit score of 599 or below, according to recent numbers released by FICO. “And while the FHA program will write mortgages with the same great interest rates all the way down to a credit score of 580, other low-rate offers will generally require a score of 720 or higher,” said Keith Gumbinger, Vice President of HSH.com.
You’ll be offered better mortgage rates with a higher credit score, says Gumbinger, and that translates into savings. Get offered a 6 percent rate instead of 5 percent on a $200,000, 30-year mortgage, and you’ll wind up paying about $125 more each month.
Here are five things you can do to raise your credit scores and get on the path to homeownership:
To learn more, be sure to read HSH.com’s article “5 ways to boost your credit score before applying for a mortgage.”