Seattle Mortgage Rates & Your Credit Score
Trying to secure an affordable home loan can be frustrating when no one will offer you a decent interest rate. You might even have trouble getting approved at all. While there are certain economic factors you just can’t control, there are likely things you’re doing that make the Seattle mortgage rates offered to you higher than necessary. More often than not, it’s your credit score holding you back.
Why Credit Matters
Your credit score is like your financial report card. This number is a representation of your behavior as a borrower. The higher your score is, the more trustworthy you are to lenders. Conversely, a low score indicates you would be a risky borrower to lend money due to a high likelihood of default. That means a mortgage applicant with poor credit will have a hard time finding a decent interest rate.
How a Credit Score is Calculated
There are a number of factors that go into calculating your credit score, some of which are weighted more heavily than others:
35%–Payment History: Your score is heavily dependent on your payment history, which is basically a record of whether you have paid your bills on time. Late and skipped payments will bring your score down, and the only way to repair this number is by consistently making on-time payments for a while.
30%–Outstanding Debt: The less you owe the better. Lenders would rather not give money to a person who already has debt on their plate, for fear that more would be too much to handle.
15%–Credit History: You have to prove to lenders and creditors that you’re a responsible borrower by demonstrating so. The longer your history of proper debt management, the more trustworthy you become.
10%–New Credit: A whole lot of loans and lines of credit is a red flag to lenders. It’s a sign you may be taking on too much debt at once.
10%–Credit Diversity: Different forms of credit must be handled differently, too. In this case, having varied credit types like auto loans, student loans or credit cards (not all at once) shows you can manage a mortgage as well.
Tips for Raising Your Score
Developing good credit takes time and effort, but there are a number of things to give your score a boost right now. Try improving your credit with these tips before apply for a mortgage so you have a better chance of getting a low rate:
- Pay down debt. This is important no matter what your credit score is because a mortgage is a huge financial responsibility in itself. Regardless, reducing your debt-to-credit ratio will improve your score.
- Avoid excessive applications. Each time you apply for credit or a loan, your credit report is pulled. A hard inquiry will knock off a few points from your score, but several pulls can have a pretty detrimental effect. Don’t apply for a mortgage unless you truly believe you have a good chance of approval for the terms your after.
Of course, there are many more factors that contribute to the interest rates you’re offered on a Seattle mortgage. These are just a couple of suggestions for making the process a little easier. For further assistance, it’s a good idea to contact a mortgage professional.
