by JoAnn Sabas
A good credit score is what each of us aspires to. After all, a credit score is one of the important determining factors when it comes to borrowing money for a home.
Mortgage lenders look at your credit score as one of the essential elements when determining whether or not to approve your mortgage application. A higher score reflects a strong credit history.
So how can you give your credit a boost to improve your chances of getting the lowest possible mortgage rate? Let’s take a look:
• Begin by getting your credit score: You have to know where you stand in order to improve. Get started by running your credit reports. By law, you’re allowed one free credit report from each of the three major credit reporting bureaus every 12 months. The reports will explain how your score was determined. For instance, your FICO score—which many lenders use to assess an applicant’s credit risk—is calculated using both positive and negative information in your report. That information is broken down into five main categories: payment history, amounts owed, length of credit history, new credit, and types of credit used.
• Fix errors on your credit report: This is a crucial step that can dramatically improve your score. If you find errors on any of your reports, dispute them immediately with the appropriate bureau. The first step is to inform the responsible credit bureau of the inaccurate information. Next, do the same with the creditor or information provider, and explain why you’re disputing the item.
• Pay down your debts and pay bills on time: Keeping your loan balances low can have a positive impact on your FICO score because your “amounts owed” category accounts for around 30 percent of your FICO score. If you can swing it, paying down your credit card debt balances to 30 percent of your total limit is an easy way to give your score a bump. Also, late payments and collections leave major blemishes on your credit report; paying your bills on time and avoiding late payment is the only way to keep a positive payment history. In addition to bankruptcy, foreclosure and judgments, collections and habitual late payments are the worst things to see on a credit report.
Undeniably, it’s important to go into the mortgage process with the best potential credit position. Just make sure to give yourself ample time to find and correct credit report errors. What’s more, doing this clean-up in advance will also speed up the mortgage process.
If you have questions about how to read your credit report, whether you might be eligible for a mortgage or any financial products or services, please contact us. We’re here to help!