Why? Well, for one, a credit score can make or break you entirely. If your score isn’t at a certain level, you may be barred from home loan financing, regardless of your stellar income, awesome job, and astronomical asset situation.
Even if you are able to obtain financing, you may be limited as far as what you can get your hands on.
And you’ll probably be stuck with a mortgage rate that is well above the market average, which surely isn’t good news.
That said, let’s take a look at an example of what you might pay for a 30-year fixed-rate mortgage based on credit score, all other things being equal.
Good Credit Score
Loan amount: $300,000
Credit score: 760
Mortgage rate: 4.25%
Monthly mortgage payment: $1475.82
Total interest paid: $231,295.20
Mediocre Credit Score
Loan amount: $300,000
Credit score: 650
Mortgage rate: 5.00%
Monthly mortgage payment: $1610.46
Total interest paid: $279,765.60
As you can see, your mortgage payment will be an extra $100 each month if you happen to have a mediocre credit score. Not even a bad credit score, just mediocre folks.
On top of that, you’ll pay an additional $50,000 or so in interest over the life of the loan term, all because you didn’t stay on top of your credit score. Or check it before applying for a mortgage. Oops…
This is why it’s imperative to manage your credit wisely before applying for a mortgage.
Many other mortgage pricing factors may be out of your hands, such as down payment and job history, as they can’t really be manipulated.
But there’s no excuse for a poor credit score.
How to Ensure Your Credit Score is Tip Top
If you plan on applying for a mortgage anytime in the near future, your first step would be to avoid applying for any new credit, as doing so can lower your score.
Along with that, it would be advised to keep existing credit balances low, and even pay them down some, assuming it won’t affect the assets you have set aside for the mortgage.
Finally, be sure to make all payments on time, each and every month. Doing so will ensure your credit score remains in good health.
And as a rule of thumb, it’s also wise to pull your credit report several months before applying for a mortgage to ensure your credit scores are where they should be. If they aren’t, it’ll take time to whip them into shape!
Read more: What credit score is needed for a mortgage?