Updated 05/08/2012 05:00 AM
Money Matters: Keep credit score in mind when applying for a mortgage
When it comes to securing a mortgage, the difference between good and bad credit could mean tens of thousands of dollars. Tara Lynn Wagner filed the following report.
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Quick: Think of your Social Security number. Got it? What about your weight? Okay, now how about your credit score? Drawing a blank? You're not alone.
"I don't think most women know what their credit score is and it's really important that you know what your credit score is because as much as we might like to live on cash when it comes to buying a car or buying a house it's not possible for us to spend purely cash on those things. We need to take out loans," says Dailyworth.com Founder and CEO Amanda Steinberg.
Steinberg describes her site as an online community of women talking about money. She says when it comes to getting a mortgage, a difference of a hundred points in your credit score, could mean tens of thousands of dollars over the life of the loan. So let's assume two different women need a mortgage of $200,000. Up first, Susie.
"So Susie has a 740 credit score, that's really the threshold for the top interest rates that you can get today," explains Steinberg.
With such a high score, Susie would probably qualify for a 30-year mortgage at 3.9 percent, putting her monthly payment at around $953. Compare that to her friend, Jane, who is offered a 30-year fixed at 4.75 percent.
"She has a 640 point credit score which is still respectable but she's going to end up paying about $1,043 per month," says Steinberg.
That difference of roughly a hundred dollars a month may not sound like much, but over three decades, it certainly adds up.
"You're looking at a difference between $340,000 and $375,000 paid. That's a pretty substantial difference," says Steinberg.
If you're looking to get a loan in the near future, there are steps you can take to make sure you put your best foot forward. One, know your credit score. Second, if it's excellent, keep it that way. If it's not, work to improve it.
Steinberg says two of the simplest strategies are pay your bills on time and watch what you spend, even if you pay your credit card in full every month.
"Because they are looking at the amount you spent last month regardless of how much you are paying off to determine your credit score, so make sure you're not spending 90 percent of your available credit every month. Spend about 20 percent," says Steinberg.