When you are seeking the best possible rate for your mortgage, your
credit score takes on an added level of importance. Your credit score
and your credit report are the two main tools that are used to decide
your mortgage rate and failure to remain up to date can lead to serious
issues later.
A lower mortgage rates equals a lower mortgage
payment. It also means lower interest payments during the course of the
loan you receive. By improving your credit scores before you apply for
an FHA loan, a VA loan or any other mortgage, you can save yourself
untold amounts of money, as well as hassle. Read on to learn more about
how to obtain credit scores for the best mortgage rates.
Find Out Your Score
It
is impossible to determine the effect of your credit score on your
mortgage rate, unless you have a strong idea of where you stand.
Creating a baseline is the first step towards improvement. The law
allows you to obtain a free credit report once year, from one of three
different providers: Experian, TransUnion and Equifax. CreditKarma.com
also provides free credit scores for those who are in need. View your
credit score as an annual obligation and be sure to remain up to date at
all times.
Know How The Score Works
While it is all well
and good to be aware of your credit score, you must also learn about how
it works. When making a final lending decision, 90 percent of all
lenders will use the score as a crucial factor during the process. There
are five categories that a mortgage applicant must be aware of. The
types of credit used and new credit each account for 10 percent of your
total score. The length of your credit history makes up 15 percent,
while the amounts that you owe make up 30 percent. At 35 percent, your
payment history is the most crucial factor of all.
Work On Your Errors
A
credit report is not infallible and may contain a series of errors. If
you do not correct these errors, they are considered fact by your
potential lenders. This is why it is so important to remain up to date
on your credit score at all times, so that you can find potential errors
and fix them as quickly as possible. When you find an error on your
credit report, it is your responsibility to contact the bureau that is
responsible for the mistake and rectify it immediately. Fixing one error
could allow your credit score to rise by as much as 30 to 40 points.
Get Rid Of All Disputed Accounts
Should
you locate any errors on your credit report, these are also known as
disputed accounts. All of these disputed accounts must be removed from
your credit score as quickly as possible, so that you can receive the
best mortgage rate available to you. In order to remove disputed
accounts from your report, simply contact the bureaus in question and
ask them to either resolve the disputes or remove them entirely.
Pay Debts Down
As
you now know, payments owed are the most pivotal aspect of your credit
score. As such, it behooves you to pay your debts down as soon as
possible. When your balances are kept low, this has an extremely
positive impact on your credit score and allows lenders to provide you
with a much lower mortgage rate. If you have outstanding credit card
balances, it is in your best interests to pay them down to within at
least of your total overall limit. Doing so is an easy way to bump up
your credit score prior to the mortgage application process.
Don’t Pay Bills Late
This
should go without saying, but late payment of bills leaves a severe
blemish on your credit report, especially when these late payments are
not addressed in a timely manner. After a delinquent payment has been
added to your credit score, a potential mortgage applicant has precious
little recourse. If you are looking to improve your past payment
history, annually review your credit report and report errors. It is
also important to remember that late payments can cause a credit score
that is satisfactory to drop very quickly.
Use Your Credit Wisely
In
addition to paying your bills on time, you also want to keep the
outstanding balances on your credit cards low. The key to using credit
wisely? Only apply for credit when you truly need it. Before applying
for credit, ask yourself if the item is a need or a want. Applying for
credit in order to obtain an item you want, as opposed to one that you
need, is how people end up overextending themselves financially. Keeping
a number of revolving credit card accounts serves as a colossal red
flag to mortgage lenders and should also be avoided.
Be Careful About Closing Accounts
This
one can be a tad tricky, as a mortgage lender is not going to want to
see a bevy of open accounts on your credit report. But it is also
important to remember that there is a certain ratio that lenders like to
see, when it comes to the applicant’s credit used versus their open
credit. Closing accounts just before applying for a mortgage can
adversely affect a client’s score and when balances on remaining credit
cards continue to remain the same, this also causes a much lower overall
credit score.
The answer to the question “How To Obtain Credit
Scores For The Best Mortgage Rates” is much easier than financial
institutions have led you to believe. By remaining vigilant when it
comes to checking your scores, correcting any errors as soon as
possible, carefully managing your money and paying bills on time, you
can obtain a mortgage rate that fits your financial needs. Simply find
out your score and then take the necessary measures to make the
improvements needed, so that you make your dream of owning your own home
into a reality.
Source: Realty Times/R. Abbe/October 29, 2015
