Who doesn’t want the lowest rates when applying for a mortgage? A lot of people are unaware of the fact that your credit card score has a great effect while deciding your mortgage rate. Your credit card score depends on your credit card history. The more punctual you are at paying off your balance, the more your credit card score increases.
There is a specific limit of credit card scores set by every bank. If your score is greater than that, then you are entitled to low mortgage rates and other offers. On the contrary. If your score is very low, then the bank could even reject your loan application.
There are a lot of factors to consider regarding this matter. Here is everything that you would need to know about credit card scores and mortgage rates.
What is Credit Score, and Why Does it Matter?
A credit score is a number allotted to you by the bank in reference to your credit card history. It basically dictates whether you are punctual at paying off your debt or not. It generally ranges from 300 to 800 but mostly depends on the bank. Here are some factors that help in deciding your credit score.
- Your payment history which tells if you are paying on time or not.
- Debt Volume which is how much debt you currently have left.
- The age of your credit card.
- Credit diversity.
- Credit inquiries.
If you pay on time and use less value of your total credit, you might be awarded a higher score. The score helps the lender identify whether you will be able to pay off the debts effectively. It acts as a certificate of trustworthiness and thus can also helps you to get lower interest rates.
The bank usually has exclusive offers for people with a credit score above a certain number. Even if you are not looking for a loan at the moment, keeping your credit score high may help you in the future. Furthermore, if your credit score is less then the lender may charge you high-interest rates. Sometimes it may also result in the lender or the bank denying your request.
Can I get a mortgage with a Credit Card Debt?
The answer is yes. Credit card debt does not affect your chances of getting a mortgage. It depends on the amount of debt and your repayment history. They might even consider your monthly income and analyze whether you could efficiently pay both the mortgage and credit debt.
On the other hand, if you credit history is not satisfactory, they might not be willing to take a risk with you.
What Credit Score is Required to Avail Best Rates?
Anything above 700 is considered excellent and will help you in getting the best mortgage rates. However, it does not mean that you could not benefit from a score slightly below it. Down below are the credit scores and their value.
- Credit Above 740 is excellent and would get you the lowest interest rates.
- Anything between 700 and 739 is good and you can still avail some good offers.
- 630 to 699 is considered fair.
- A score below 629 is called poor.
How Much can I Save with a Good Credit Score?
We are aware that a good credit score will help us save some money by providing us with low-interest rates. While comparing interest rates offered by other scores, it might not look very different but they can help you save a lot over the course of a longer loan.
For example, an excellent score will get you an interest rate of 3.5% p.a. while a good credit score will grant you 3.7% p.a. On comparison, it might not look like a big difference, but the results can be pretty convincing when you calculate the total interest paid for a long tenure.
Suppose you take a loan of AED500,000 with a 30 years repayment term. The total money plus interest that you have to pay if you had an excellent score would be AED525,000. If you had a good score then you would have to pay AED555,0000. That’s a difference of $30,000 over the course of 30 years. The difference keeps increasing as your score gets low.
Are Credit Score Applicable on All Type of Mortgages?
While credit scores do help you in getting the best offers, it mostly depends upon your bank or money lender. Most institutions do not follow a strict score system which means that anything above a 600 will get you good offers. Some may even offer you comparative interest rates even if your score is in the 500s.
Government banks usually offer acceptable interest rates even for lower scores. But you would have to pay extra charges such as mortgage insurance and upfront payments.
How Can I Build My Credit Score?
Before applying for a loan, you would want to improve your credit card score so that your chances of getting good mortgage rates are high. A credit card score mostly depends upon your credit history. Here are some ways in which you can advance your credit score.
- Make all your payments such as rent, loans, and credit debts on time.
- Spend less than 30% of your allotted credit limit.
- Pay off credit cards that are a high balance.
- Make bank transfers to free up your credit.
- Check your credit statement and fix an error if any.
- Do not inquire a lot it may decrease your score.
- Find a credit counselor to guide you if you are unable to comply.
With this, we have concluded that our credit score does impact our mortgage rates and can help us save a lot. Maintaining a good credit history and score is a bit challenging but if done in the right way can prove to be convenient. If you take into account every matter and work according to a plan then achieving a good credit score would not be difficult.
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