I know that the higher your credit score, the lower your mortgage interest rate will be. Is there a formula for calculating an interest rate?
There is no standard scale or formula for assigning interest rates. Each lender considers the applicant's financial profile, and market conditions in the area and even nationally, analyzing such things as bond yield fluctuations and inflation. Lenders don't simply consider your current credit score, but your overall individual financial profile. Your income, and debt, especially your amount of debt compared to income, are important factors in getting a mortgage.
Still, mortgage rates do vary by lender, and the credit score is a good rule of thumb for rates.
Mortgage interest rates change all the time, but to get the best interest rates, you need a credit score between 760 and 850. If that score were to drop 100 points, your interest rate would typically go up a half a percent or even more.
For a person with a credit score between 620 and 659, the interest rate charged by a mortgage company might be about 1.3 percent higher. Each mortgage company or lender determines its own rate, but this gives you an idea of how they might calculate your rate.
You could qualify for a higher credit score within months or a year if you pay down some debt and make all of your payments on time.
Don't give up a paid-off credit card — it's to your advantage to have available credit that isn't being used.
The difference in interest rates shows why it's so important to get your credit history on track before applying for a loan. A half a percent can add up to thousands of dollars over the life of the loan.
Most negative information drops off your credit report in seven years. The exceptions are a Chapter 7 bankruptcy filing or an unpaid judgment against you on a law suit. These items stay on a credit report for 10 years.