![]() And that can translate into a lower interest rate, which can save a significant amount of money over the term of your loan.” “But if someone has a high credit score it shows us that they have been good at fulfilling their obligations when paying debt on things like car loans and credit cards. Monthly income and assets also play a factor,” says Alan LaFollette, Managing Director, National Mortgage Sales at First National Bank. “Your credit score isn’t the only factor a lender considers when determining the interest rate of a home loan. The better credit history you have, the higher your credit score will be, and the lower interest rate you will be assigned. That’s one way to visualize how a lender might look at your credit score – which includes your history of paying off debt – when they calculate the interest rate for your home loan. However, since Jack is a bigger risk, you might charge him 20 percent interest, or $20, for a total of $120. Since Jill is so good at paying people back, you might only charge her 10 percent interest, or $10, for a total payback of $110. So, who are you more eager to loan that $100 to? Further, if you are a nice friend and you loan both Jack and Jill $100, the interest you might charge them could differ. She’s never late with her repayment – no worries, no hassles. He’s even skipped paying some friends back all together, leaving them high and dry.īut your other friend, Jill, has always been really good at paying you back. You have to text and email him constantly asking about repayment. One friend, Jack, has a history of taking forever to pay friends back. For lenders, it helps them measure the risk they are taking in issuing you a loan.įor example, say you have two friends who both want to borrow $100. On the other hand, having a low credit score usually means paying a higher interest rate. First, let’s talk about how your credit score affects the mortgage rate you receive when applying for a home loan.Īs we mentioned, if you have a high credit score, you traditionally will get a more competitive rate on your mortgage. We’ll get to why a low interest rate – even a fraction lower – matters in a minute. Low credit score = not as good of an interest rate.High credit score = good interest rate.Let’s begin with a simple way to look at credit scores and how they typically influence mortgage rates when applying for a home loan: ![]() Your Credit Score Plays A Major Role In Your Mortgage Rate ![]()
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