How Does My Credit Score Affect My Mortgage Rate?

A borrower’s mortgage rate can be greatly affected by his credit score. All lender’s have their own system for loan approval and how they determine interest rates, but every system takes a borrower’s credit score in to account when making their decision. A low credit score can not only have a borrower denied from getting a mortgage, but it will more than likely have a negative affect on the mortgage rate. A high borrower with a high credit score will be rewarded with a very low rate, because the lender will see this borrower as little to no risk, and will therefore want his business.

How a low score will affect your mortgage rate

Lenders are worried about one thing: risk. The most simple form of a lender determining the amount of risk from a potential borrower is by looking at his credit report. A borrower with a low credit score will automatically be considered a ‘high risk’ client. So from a lenders point of view, with high risk must come a high payout. The way the lender will get a high payout from one with a bad credit score, or a high risk client, is by charging them more to borrow the money for the mortgage. The difference between a percentage point will be thousands over thirty years.

How a high score will affect your mortgage rate

A borrower with a high credit score will get a good interest rate. Those with a tier 1 credit rating will have the power of negotiation with the lenders as well. Tier 1 is usually a credit score over 730. These borrowers are considered basically no risk, and therefore it is basically considered a risk free loan from the lender. The lender will then want this borrower very bad, because it is easy money with no risk, a very good investment for the bank.

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