Tips for Better Mortgage Rates: Improve Your Credit Score

Improving Your Credit Score Is One of the Most Effective Tips for Better Mortgage Rates. Follow These Steps to Build Your Credit and Change Your Options Before You Get a Loan.

Tips for Better Mortgage Rates

One of the best tips for better mortgage rates is have a better credit score. This might seem unhelpful or a little obvious, but along with preparing and shopping around for pre-approval ahead of time, having a better credit score and knowing it are among the best tips anyone can give you for finding better mortgage rates in any market. And surprisingly, you can do a fair amount to boost your credit score. And the more time you give yourself to plan ahead, the easier it will be to get your credit score in shape and access better mortgage rates.

The first thing to do learn your credit score. You can do this online for free or virtually free. Knowing is the most important step because it lets you know whether you have to worry about your credit score or not. Average credit scores range from 620 to 679. If you’re above that, you are ready and don’t need to worry about your score, although there’s almost always something you could do. Above 720 is strong, and 750 or higher is excellent, while below 620 is bad and below 600 means you probably can’t get a worthwhile lone even if you can put 25% down. Depending on the market your loan options will either be very expensive or non-existent. Scores go as low as below 500. But the good news is there’s usually a lot you can do to deal with this problem.

Review your credit history

Something as simple as someone else with the same name having financial problems can lead to mistakes at the credit bureau that impact your credit score. And if you were unknowingly the victim of identity theft, the negative results can be the same. In either case, if you identify errors that weren’t your fault, contact the credit reporting agency that lists them. If they don’t believe you, contact the relevant lender or credit agency to verify that the mistake wasn’t yours and have them confirm it with the ratings agency. This can remove damaging blemishes and help your score a great deal.

This will also help you identify the mistakes and problems that were your fault. Take note of them and keep them in mind, because sometimes you can address these as well. This may also point out unused credit card lines that you haven’t thought of in a while, which is good to remember.

Manage your utilization ratio

Your credit score evaluates how much credit you have and the ratio of how much of that you use. The lower the ratio the better. However, if you have a huge line of credit that doesn’t match your earning power, banks may look askance despite your higher credit rating, so you want a healthy amount of credit that would help get you through an emergency and that you never fully utilize, but you don’t want excessive amounts.

This means that you should neither get new cards nor close old ones unless you’re in an unreasonable situation. If you need another credit card, now is a good time to get one, and if you have cards you literally forgot about that represent significantly more credit than you could ever need, it might make sense to close one. However, even if you’re concerned about your own over-spending, the best route is usually to lock spare cards in a safety deposit box and keep the line open, both for your score and for emergencies. Interestingly, those extra cards are most helpful if they are active, because this ensures that they get noticed and reported by the creditor. So if you have the self control, it’s a good idea to circulate through your cards and use them all a little, just to ensure that they impact your credit utilization ratio.

Pay off debt

The lower the amount of debt you carry, the better. This factors into your utilization ratio, and if you have any debt that’s past due, it can lead directly to dings on your credit score if the creditor reports them. So pay off past-due debt ASAP, whether it’s credit card debt or missed car payments, to prevent future decreases in your score. Then, make a plan to pay off the rest of your credit card debt, even if it involves paying less than the balance by contributing every week. Credit card agencies that see cards active report on your activity regularly, so paying every week can lead to a gradual improvement in your score as your utilization ratio falls.

Lastly, don’t get rejected for new credit. If you’ve applied for a new credit card recently and been rejected, it’s time to make do with what you have. Rejections hurt your credit score, and if you were rejected you’re probably in a rough financial situation anyway, so more credit cards aren’t the best solution.

When it comes to tips for better mortgage rates, most people will say your credit score is a vital factor. However, you do have to take the time and put in the effort to follow these steps to make your credit score into an ally that can help you get better rates. This is one of the many reasons why it’s a good idea to start thinking about your mortgage and home-loan pre-approval well before you’re ready to begin home shopping.