Interest Rate and Credit Score - Oro Valley Real Estate
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If the Federal Reserve lowers rates, only some mortgage borrowers need to pay attention, including those with adjustable-rate loans. The majority of Americans, who have fixed-rate mortgages, won’t be affected.
If rates are lowered, here’s what happens for home shoppers and homeowners.
What will happen to long-term fixed mortgages
Would-be homebuyers interested in a fixed-rate mortgage or those who want to refinance should take advantage of today’s low interest rates. Fixed-rate mortgages aren’t expected to decline if the Fed lowers rates as they’re already largely priced into the current level of market rates. The best course of action for homebuyers is to decide whether they can afford the home they want based on their down payment and current mortgage rates. Today’s rates are low, so waiting for even lower rates can mean missing an opportunity-in-waiting.
Variable-rate loans will get cheaper
The winners, if the Fed lowers rates, are borrowers with variable-rate loans. The bigger the loan, the bigger the savings. So, home equity lines of credit and adjustable-rate mortgages will get less expensive if rates drop. Those with variable-rate mortgages may have to wait a while to see their payments fall. Such loans typically adjust annually on their anniversary dates. Some don’t adjust at all for the first two, three, five or even seven years.
A higher credit score typically means better interest rates and loan options, when getting a mortgage. The median credit score for mortgages taken out this year sits at 759. Any score between 700 and 749 is typically deemed good.
How to improve your credit score
Pay all of your bills on time and in full. Payment history makes up 35% of your FICO score, which is the most commonly used measure of creditworthiness. Setting your bills on auto-pay and keeping tabs on your payment due date for each account will help ensure that you routinely make on-time payments.
Pay attention to your credit utilization rate, which comprises 30% of your score. Experts recommend keeping it at 30% or less month to month. Credit utilization refers to the percentage of your total available credit that you are using at one time. If your credit card has a limit of $10,000 and you have a balance of $2,000, your credit utilization rate is 20%, for example.
Other ways to improve your score include keeping your oldest credit accounts open and making sure you're not over-applying for new lines of credit. The length of your credit history makes up 15% of your score, while the mix of credit inquiries you've recently made each comprise 10% of your score.
It's also smart to keep an eye on where you stand. You are allowed one free credit report per year from Equifax, Experian and TransUnion.