Anyone interested in buying a home should take a very close look at their credit score before they even think about applying for a loan. This is because your credit history and credit score will play a big part in determining how much interest and how many upfront fees your lender will charge. How can you use your credit score to tell if you’ll have to pay more in fees and interest than other borrowers?
If your credit score is below 600 across the three major credit bureaus (TransUnion, Equifax and Experian, you’ll probably have to pay more for a bad credit home loan. Although other factors affect loan costs and rates, good credit is usually above 600, excellent credit scores are above 700, and anything less than 600 is considered poor to bad.
Consider the thousands of dollars in interest alone a mere half a percent in interest can make over 30 years, and you begin to understand the real costs of having poor credit. Improving your credit score by just a few points could save you a huge amount on your bad credit home loan, so it is worth the extra time and effort it takes to do so.
Consider too that any money you save on a bad credit home loan equates to money you can use to invest in your retirement savings, other investments, or use towards college. Although your credit score will change over time (hopefully for the better), the bad credit home loan you take out today will have a long-term impact on your financial situation.