Did you know even a one-point drop in your credit score could cost you thousands of dollars on your mortgage?
It might sound ridiculous, but we spoke with Jason Thurber, a Cornerstone Lending Group partner in Sarasota, Florida, and asked him to run some hypothetical scenarios. Thurber says the difference between a credit score of 739 and 740 could increase your mortgage interest rate by 0.125%.
That means if you take out a $180,000 mortgage, that one-point difference has you paying $222 more each year. If you have a 30-year mortgage, that’s $4,795 over its lifetime.
You’ve just lost out on nearly $5,000 — all because of one credit score point…
Future home-buyers: Feeling flustered? Don’t panic. You can check your credit score for free through Credit Sesame. It even offers customized tips to help you improve it before applying for a mortgage.
Hypotheticals Are Nice, But Can This Actually Happen?
JP Clayton is a 30-year-old software consultant from Sarasota, Florida. In September 2017, he and his wife, Ashley, purchased their first home.
The process was, well, a bit painstaking.
The newlyweds applied for a joint mortgage. They assumed lenders would use the better of their two credit scores. But that wasn’t the case.
With a joint mortgage, lenders pull all three credit scores (Equifax, Experian and TransUnion) for each of the two parties. Then, they compare the middle score of each applicant and use the lowest score.
That was JP’s.
His score wasn’t bad, but it did have an old error he’d never gotten around to fixing. Then, because the couple lost several homes to other buyers after applying for preapprovals, his score took a slight hit from multiple hard inquiries in a short span of time.
When they finally found The Home, their mortgage lender called. JP’s score had dipped five points below where it needed to be to lock in the 3.75% interest rate they’d budgeted for. The Claytons were forced to settle with a 4% interest rate.
This quarter-percent jump would cost them $15,000 over the life of their 30-year loan.
“I was really surprised and frustrated,” JP says. “We knew our credit scores were important but had no idea that a five-point difference could be so significant to a loan in the long run.”
How to Shape Up Your Credit Score Before Buying a Home
Before applying for a mortgage, you’ll want to make sure your credit score is in tip-top shape. And more than that — try to build in some cushion, in case you get hit with multiple hard inquiries.
So, where should you start?
Check your credit score for free at Credit Sesame. There, you’ll also gain access to your credit report card. Take a peep — and don’t worry, checking your score won’t affect it.
Your credit report card grades you on the factors that affect your credit score. It’ll let you know what’s going well — and what needs some love.
For example, you might be able to increase your score just by lowering your credit utilization rate. If you’re wondering how to do that — or even what that means — Credit Sesame has you covered with easy-to-understand explanations and even personalized recommendations.
Sure, you might think, “Oh, no big deal. It’s one point.” But that one point could cost you thousands over time, so get your credit score in check before you begin the home-buying process.
Carson Kohler ([email protected]) is a staff writer at The Penny Hoarder.
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