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Lenders consider your creditworthiness to be one of the most important factors they use in determining the interest rate you will qualify for, experts say. Even if you see interest rates on a refinance below 3%, it does not mean that you qualify for those interest rates. (Some mortgage refis rates are around 2.5%; Check out the lowest prices you can qualify for below and here).
Simply put, the lower your credit score, the more interest you are likely to pay over the life of your mortgage. Even if you pay a quarter of a percentage point more than if your credit score was higher, interest rates can add up to thousands of dollars. If you have a mortgage of $ 500,000 at 4.5% and your monthly payment is $ 2,533, a refinance at 4.25% could mean reducing your monthly payment to $ 2,459, saving $ 324 per month. (Find the best mortgage refinancing rates near you here.)
So what is the credit score that you need to get the lowest interest rates?
“Credit scores of 700 and above make it easier to qualify with the best terms available to those with credit scores of 740 and above. While it’s possible to refinance with a credit score between 620 and 680, the terms aren’t nearly as good, ”said Greg McBride, chief financial analyst at Bank rate. Adds Holden Lewis, home and mortgage expert. added NerdWallet: “For refinancers with a credit score of 740 or higher, life is easier than it is from the mortgage lender’s point of view [they’re the] Lowest Risk Borrower.
As Jacob Channel, Senior Economic Analyst at Credit tree, points out that these scores are not always required: “With other types of credit, such as an FHA loan, a borrower with a credit score of only 580 could be approved.”
What other factors will affect my ability to obtain refinancing?
Of course, it is important to understand that if you are approved for a refi at a good price, it is not all about your creditworthiness. Lenders also look at your income and other aspects of your financial profile such as your savings, debts, and more. “Lenders are typically unlikely to work with someone with a credit score below 580, although there may be some exceptions depending on the lender and the person requesting the refinancing,” says Channel. Adding a co-signer to the loan can make someone a more attractive candidate, as can a lot of money that is saved. “Remember, even if the aspects of your overall financial profile other than your creditworthiness are great, you will still have an uphill battle for approval,” says Channel. (Check out the best mortgage refis rates you can qualify for here).
How can I improve my credit rating?
If your credit score does not meet the minimum requirements, there are a few things you can do to get a refinance approved. “First of all, you can look for a lender who has less stringent credit requirements. Just because one lender didn’t approve your refinance doesn’t mean every other lender will do the same, ”says Channel. To improve your credit score, some of the steps recommended by Channel include:
If your score is lower than you’d like, don’t despair. “If you make all your payments on time and settle all revolving debts, time will heal the wounds. When you’re near the threshold, make a large payment against a revolving balance, or use something like Experian boost could get over the hump relatively quickly, ”says McBride.