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“Your credit score doesn't just affect whether or not you get a loan; it also affects how much that loan is going to cost you. As your credit score increases, your credit risk decreases. This means your interest rate decreases.
For example, a credit score of 720 could result in an interest rate difference of 3 percent for someone with a credit score of 580. This can me some serious difference in the the amount paid over the life of a loan.
Your credit score is a basic financial measure that a mortgage lender will use.
First they will use it as a cut-off to see if you even qualify for a certain mortgage program. The same lender may have many different kinds of mortgages available. Usually each of these different loan programs has its own underwriting criteria.
Credit score minimums are usually set for each of the lender’s programs.
The second way a mortgage lender will use your credit score is to “price” your loan.
This means determining what kind of interest rate you are eligible for.
Your credit score is one of many factors that go into what your interest rate will be, but is can be very important.
Very often mortgage lenders will have a top down approach to credit score grading. If your credit score is between 719-700 you may be offered one rate, another rate if your score is between 680-699. This goes all the way down to the minimum credit score. The credit score referred to here is the “mid score” which is the middle credit score on your credit report. You usually have three different credit scores but the one most lenders use for lending purposes if you “mid score”.
If you would like to learn about credit scores here are some links:
http://www.en.wikipedia.org/wiki/Credit_score
http://www.nationalscoreindex.com/ScoreNews_Archive_02.aspx