Why is it important for borrowers to understand their credit score when applying for a mortgage?

Understanding one’s credit score is crucial for borrowers when applying for a mortgage because it directly influences the interest rate and the terms that lenders are willing to offer. A higher credit score reflects a borrower’s responsible financial behavior and lower risk, which often results in more favorable loan conditions, such as a lower interest rate, smaller down payment requirements, and improved chances of loan approval. Conversely, a lower credit score can lead to higher interest rates and less favorable terms, resulting in increased costs over the life of the loan.

Additionally, lenders typically use credit scores to assess the likelihood that a borrower will default on their loan obligations. Therefore, a good credit score can open doors to better financing options and can significantly affect the overall affordability of a home purchase. Understanding this can empower borrowers to take proactive steps to improve their credit if necessary, ensuring they secure the best possible mortgage terms.