Updated June 15, 2013
Did you know that once your credit score exceeds a certain threshold, it doesn't matter how much higher it goes? You'll still get the same mortgage rate whether your score is 760 or the highest possible score, 850. Check out this calculator from myFICO, which will show you what interest rate you can get given your credit score.
This chart shows that in the 700-759 range, you'll pay 0.22% more than borrowers with the best credit scores (those in the 760-850 range). Those in the lowest credit score bracket of 620-639 will pay 1.59% more than borrowers with the best credit scores. That's fairly significant both in terms of monthly payment and the amount of interest you'll pay over the life of the loan.
In other words, if you can do a few things to quickly improve your credit before applying for a mortgage, do them. If you are carrying credit card balances and can afford to pay them off or pay them down entirely, for example, do it. Just don't close the account when you're done (if you can avoid it) because that will lower the average age of your accounts, which will hurt your score. I say if you can avoid it because some cards charge an annual fee, and I would want to ditch that card even if it hurt my score--but that's just me. Bumping your credit score up a bracket could lower your interest rate by at least 0.2%.
I know there are things I could do to improve my credit score, but since my score is already above 700, I think the best plan for me is to do nothing. My fear is that with some of the ambiguity in credit scoring, I might do something I think is helping my score and end up hurting it instead. I figure if I keep doing what I'm doing, my score should stay the same and keep me in good standing.
Photo by alisdair
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