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How does your credit score affect your mortgage rate?

Getting your financial house in order before you buy a Carnegie home can save you as much as tens of thousands of dollars in mortgage interest payments. One area that prospective home buyers should look at is their credit score. Bankrate explains that your credit score can have a substantial impact on how high lenders will set your interest rates.

Banks and other financial institutions want to gauge if you are trustworthy in paying off debt before they approve your mortgage. A credit score is a major indicator of how well a person pays off outstanding debts and balances. A high score means that the individual has a great track record of making payments on time and does not possess a lot of debt. As a result, lenders will usually offer lower interest rates to people with high scores.

While lenders tend to look at credit scores from the three primary credit agencies, a wide range of lenders are most likely to check scores calculated from the Fair Isaac Corporation. The FICO scale ranges from 300 to 850, with high scores denoting good credit and reduced risk to lenders. Poor scores are anything from 579 and below, while truly exemplary scores are 800 and above. A person with anything from 740 to 799 is still considered very good.

If you fear your credit score is too low to secure the rates you want, you can put off buying a home and focus on raising your score. Make sure you pay your bills and loan installments on time. Pay your outstanding balances on your credit cards under 30 percent of the card's maximum limit. Resist taking out any additional loans or applying for new credit cards. Also, sometimes credit reports may contain errors that are lowering your score. Look at copies of your credit report for any erroneous information and ask that the errors be removed.

Please be aware that while this article educates readers on real estate transactions, it does not offer legal advice.

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