Mortgage companies use different credit score models to determine your rates – FICO Score 2, FICO Score 4 and FICO score 5. For the most part, these models are powered by similar factors including payment history, length of credit history, and your current debt obligations.
Banks and lenders will use your credit score to decide how worthy of credit you actually are. But it doesn’t need to be nearly as high a score as people often assume. Although this does affect your mortgage rate, and if it’s really low you actually might not be eligible, however, you don’t need a 720 credit score to qualify.
FICO, creator of the FICO score, has an excellent loan savings calculator that demonstrates the impact of credit scores on mortgage rates. You can visit the loan savings calculator enter your state, mortgage amount, and credit score rage and get an idea of what your mortgage terms would be.
· Between 300 and 499. This credit score range is considered below average, but you probably don’t have any extremely negative problems with your report, such as a bankruptcy. In fact, you may just be in a younger age bracket, which lenders classify as riskier. Tighten up slightly on your credit behaviour and you should see improvements.
Poor credit scores often lead to higher mortgage rates and increased closing costs leading to a higher monthly payment.Obviously the higher your credit score the lower you rate will be. 579 and lower – If you are approved for a mortgage with this low of a score you will have a credit score as much as 2% higher than the current lowest rate.
Credit Scores. One widely used score, the FICO score, ranges from 300 to 850. Banks and other lenders give the most credit-worthy borrowers the best terms on loans. However, banks can determine their own borrower criteria and loan terms. Further, your score can change over time, and banks can change their loan criteria whenever they like.
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Get the Score Lenders Use to Evaluate Your home mortgage loan. After you’ve determined that you’re ready to buy a home, you need to understand how lenders see you. Lenders will determine your credit-worthiness based on your FICO scores.