How Your Credit Score Affects Your Interest Rate

by Dotson Skaggs 11/03/2019

Image by Tierra Mallorca from Unsplash

One of the most important things to check once you decide to start the home-buying process is your credit score. The three major credit bureaus keep track of how you pay for your credit and how much credit you have. Your score fluctuates, sometimes daily, depending on how much you owe and how many accounts you have. Applying for credit also affects your score. It will usually drop by 2 points every time you apply for a loan or credit card, even if you don’t get the credit.

Applying for a Mortgage

When you apply for a mortgage, the lender pulls your credit score from all three credit bureaus. The lender will advise you whether it has a loan program that will accept your credit score. Some loan programs work with those who have scores as low as 520. Because the credit bureaus deduct points every time you apply, it’s better to call lenders and ask them if they have programs for lower credit scores—if your score is low.

Credit Scores and Interest Rates

Because lenders interpret your credit scores as the inability to manage your credit, they deem the risk of loaning you money quite high. The higher the risk, the higher your interest rate will be. If you have a credit score of 750, you might get a lower interest rate, depending on the current going rate. However, for the same loan, if you have a credit score of 540, you will pay quite a bit more interest. While rates depend on the bank, an example would be that you could pay 9 percent instead of 4 percent if the going rates are at 4 percent.

Changing Your Credit Situation

Before you even start looking for a house, pull your credit from all three major credit bureaus. Look for incorrect data. Dispute the data to correct it. For example, if you see a 90-day late on a credit card that you did not apply for or use, dispute that card to take it off your credit report. It is always a good idea if you pull your credit at least every three months to check for identity theft and incorrect data.

If your credit score is low because you ran into hard times and everything is correct, you could buy down your interest rate and put a larger down payment down on the loan. While you are saving up for the down payment, make sure you pay your bills on time to better your credit score. Try to save up 25 or 30 percent instead of the 20 percent most lenders require. Saving up a few thousand extra dollars also allows you to buy points, which drops your interest rate. A higher down payment also decreases the lender’s risk and might get you a lower interest rate.

The cost of points is usually 1 percent of the total loan. Thus, 1 point on a $100,000 mortgage would cost you $1,000. It could buy you a quarter of a percent interest rate. Instead of an 8 percent interest rate, you would have a 7.75 percent interest rate.

Researching loan programs and making sure your credit is accurate helps you determine whether you want to start the house-hunting process now or save for a higher down payment and wait for your credit score to increase.

About the Author
Author

Dotson Skaggs

Living in Denver continuously since 1960, Dotson has witnessed The Mile High City mature to become one of the nation’s top metropolitan statistical areas.  As one of Denver’s elite real estate salesman with 2,000+ homes sold and $600,000,000+ in sold volume, Dotson is annually one of the top 15 agents out of 5,000+ members with the Denver Metro Association of Realtors.

     Based on the principles of service, professionalism, and our Realtor Code of Ethics, Dotson sponsors and donates his time to numerous community service projects such as dumpster day, shredding day, a community garage sale weekend and a neighborhood young entrepreneur’s career fair.  Dotson also distributes American flags to neighborhoods for the Fourth of July, helps sponsor a neighborhood picnic, prepares and distributes HOA directories to various communities and sponsors a neighborhood annual photo session with the Easter Bunny.  Dotson also serves his fellow Realtors by volunteering on the Denver Metro Association of Realtor’s Professional Standard’s (Ethics) Committee.

     To better serve his clientele with the principles outlined above, Dotson left his own independent real estate company after 22 successful years and joined the nationally acclaimed Kentwood Real Estate in 2005.  Dotson has been blessed with the opportunity to serve countless homeowners and buyers with their individually unique and diverse needs.

     In addition to real estate, Dotson’s passions are spending time with his growing family, working out, playing golf, reading and observing the political scene.  He dreams to one day possess a golf game which is commensurate to his real estate career.  However, Dotson is also known to be overly optimistic when it comes to his golf game.

Dotson’s Favorite Quote is:  “Never Give Up.  Never Give up.  Never.  Never.  Never.”            Sir Winston Churchill (1941)

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A BRIEF SUMMARY OF DOTSON'S CREDENTIALS AND REAL ESTATE EXPERIENCE:

Over 30 Years of Real Estate Experience in Negotiating the Sale, Purchase and Leasing of Property (20 Years Broker/Owner) 

Over $600 Million in Sales Volume 

2,500+ Homes Sold in the Denver Metro Area

2014, 2015, 2016 & 2017 Wall Street Journal - Top 100 producing agents in Denver Metro Area

2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016 & 2017 Kentwood Champion’s Club Recognizing Over $17 - $31+ Million of Annual Sales

2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016 & 2017 Denver Metro Association of Realtors Gold Roundtable of Excellence Award with $17 - $31" Million of Sales Volume 

Prestigious Certified Luxury Home Marketing Specialist Designation

Member of the Colorado Association of Realtors’ Ethics and Professional Standards Committee for the Past 25 Years 

Member of National Association of Realtors

Member of Colorado Association of Realtors

Member of Denver Metro Association of Realtors

Member of Denver Metro Area Multiple Listing Service

     In addition to possessing a true love for assisting homeowners and buyers with their real estate needs, Dotson is just as devoted to his family's needs. In his leisure time, Dotson enjoys activities such as snow skiing, golfing and camping in the beautiful Colorado mountains.  Dotson has also contributed to the Denver Metro area community by being an active supporter in many local groups and charities. He served in the Big Brother's organization for 10 years and has supported and contributed to the American Zang Foundation. This organization provides assistance for low-income and minority students in locating, applying for and obtaining college scholarships.

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OVER 30 YEARS OF TRUST AND EXPERIENCE

SERVING THE ENTIRE DENVER METRO AREA

  • MBA, BS, CRS, GRI, ABR, CDPE, LHMI, MCNE
  • Top 10 Brokers - Denver Board of Realtors
  • Top 15 Individual Sales - Denver Board of Realtors
  • Top 10 Transactions - Denver Board of Realtor
  • More than $500 Million Career Sales and 2,500 Transactions

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EDUCATION

  • Masters of Business Administration - Marketing
  • Bachelor of Science-Business/Land Management