One of the most important things you can do before applying for a home mortgage is to improve your credit score. While a high credit score is only one factor in the loan process that lenders consider, it may be the one that is paid the most attention to, as it is an indicator of your creditworthiness. Here are some ways to raise your credit score so that you can qualify for better interest rates on your home mortgage:
Remove Negative Items
To get offered the lowest possible interest rates from mortgage lenders, your credit score has to be the highest it can possibly be. One of the most common reasons your credit score takes a hit is because your credit report contains mistakes or outdated information. For example, the credit information of someone who has a similar name as yours or someone with a similar social security number may erroneously appear on your credit report.
If these people have poor credit scores or negative credit histories, your credit rating may plummet. Because of this, you should always check your credit rating periodically so that errors can be identified and addressed as quickly as possible. If you find an error on your credit report, call the credit bureau, and if you can prove that the negative information is incorrect, it will be removed.
It is important to note that while the credit bureau will make every attempt to expeditiously remove the negative information, it may take a month or more before your credit report updates. If the negative information still appears on your credit report when you apply for your mortgage, explain the situation to the loan officer.
You may also need to have the credit bureau fax a letter to the lender, stating that the negative information was incorrect and is now in the process of being removed from your credit report. Also, before the credit bureau removes the incorrect information, you may need to submit a letter of dispute, and send it to the bureau by certified mail.
Use Your Credit Cards Wisely
If you will be applying for a mortgage, make sure you do not max out your credit cards by going over your credit limits. Do not even get close to exceeding your credit limits because the interest charges incurred monthly may put you over your limit, which will negatively affect your credit score.
Also, do not apply for additional credit cards because this will result in inquiries. Too many credit inquiries may lower your credit score; however, this is typically dependent upon whether the inquiries are hard inquiries or soft inquiries. Hard inquiries impact your credit rating more than soft inquiries and may remain on your credit report for a couple of years or more.
When you apply for a credit card, personal loan, or an apartment lease, it will probably result in a hard inquiry. Conversely, checking your own credit score may result in a soft inquiry. A soft inquiry typically does not affect your credit rating; however, it is probably wise to avoid too many soft inquiries right before you apply for a home mortgage loan. In addition, if possible, pay off your credit cards before applying for your mortgage.
While this is not always possible, at least make more than the minimum monthly payment. While paying more than the minimum monthly payment may not have an immediate positive impact on your credit report, it will show the lender that you are serious about paying down your debt in order to improve your financial status.
Over time, making more than the minimum payment on your credit cards may substantially improve your credit rating. If you pay off your credit card debt in total, your credit score is likely to skyrocket after a month or so.
Before applying for a mortgage, consider the above strategies for raising your credit score. To learn more about the benefits of having an excellent credit score, contact your mortgage lender, who can also inform you about the best loan programs suited to your individual needs.
Share1 July 2019
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