What is a credit score?
You’ve likely heard about credit scores many times before, but what exactly are they? Simply put, your credit score determines the likelihood of you as a borrower to pay bills when they are due. Your credit score is thus improved when you pay bills on time (such as credit cards or cell phone bills). If you consistently are late on payments, your credit score will decrease. Other factors such as credit usage, age of your credit accounts, and new requests for credit can impact your score as well.
Credit scores fall in a range of 300-900, but the exact number is less important than the range in which it sits. Scores of 700-900 are considered excellent! If you’re in this range, you’ve got nothing to worry about! Scores approaching 900 are extremely rare, but they also aren’t all that valuable. A score of 900 will not provide any additional borrowing benefits or rates compared to a score of 700.
How to improve your credit score.
Not everyone will have a credit score above 700, but the good news is you have options! First and foremost, do everything you can to manage your bills. This may mean getting rid of one of your family cars, or eliminating frivolous expenses to make sure you can afford to pay your bills on time. You should also avoid hard credit inquiries. A hard credit inquiry, such as applying for a new credit card or taking out a loan, can harm your credit score if you are not approved. It’s best to work on improving your credit with an end goal of a hard inquiry in mind.
Does a higher credit score lower your mortgage interest rate?
The short answer is yes, it does, BUT it may not be as important as you think! Lower credit scores will make it more difficult for you to find lenders. For example, scores under 600 will cause your rates to increase as lenders are more cautious. But as we mentioned before, a good credit score is a good credit score. If you’re rocking a 700, you’re doing fantastic! Desperately trying to increase it to 800 or higher provides no further benefit to you. A good credit score allows you to borrow from prime lenders and their best rate. So if your score is above 700, you shouldn’t have to worry about your credit score getting in the way of your mortgage goals!
If your score is under 700, or you have not been approved by a prime lender, you still have options! You can check out our post on alternative credit by clicking here.