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Caron
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Posted: Fri Nov 04, 2005 2:57 am Post subject: Does a good credit score guarantee low interest rate?
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| Quote: | | Does a good credit score guarantee low interest rate? |
A good credit score increases your chances of getting a mortgage at a comparatively low rate. But this may vary from one lender to another because lenders rate you on the basis of your score and they follow various methods for rating borrowers. This is turn affects the mortgage rates charged on your loan.
You may get a home loan even with a poor score but then you may be paying higher rates in return. So, in most cases the higher your score, the lower is the interest rate charged on the loan. When you have excellent credit, you can avail better mortgage rates. For instance, with a good score, lenders will rate you better and you may end up paying interest at 5.5% only for a long term fixed rate loan. But with scores below 650, you may be offered an interest rate 1% higher than the previous rate.
With a high credit score, you can also get refinance loans or home equity loans at better rates. For instance, you can get a home equity loan at a rate of 7.911% if you have a score between 720 and 850. But for the same loan amount, a consumer with a credit score between 640 and 659 may have to accept a rate of about 9.486%.
For a particular lender, a higher score will give you a low rate but if you consider a number of lenders, there's no guarantee as to whether you will get a low rate mortgage with a good score. This is because it is the lender who decides whether your score is "good" or "bad" and they differ in their standards of determining whether a score is better or worse.
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