Improving My Credit Score to Get the Best Mortgage Rates
Before you even consider getting yourself a mortgage, ask yourself this important question, ” Whats my credit score?”
If you don’t know the answer, it’s time you found out.
Your credit score is a 3 digit number that represents your entire credit history. Credit reporting bureaus calculate this number, by looking at things such as outstanding debts, if you pay on time or not, and whether you carry an outstanding balance on your credit cards.
The typical range for a FICO credit score is between 300 which is the worst, and 850 which is the highest possible credit score you can achieve.
To get a good prime rate on a home mortgage loan, you will want to have a credit rating of no less than 650 or higher. In the not so distant past, before the housing and real estate crisis in the US, it was possible for people to get a good mortgage prime rate with a credit score as low as in the 500-550 range. However since then, banks and lenders now put a lot more emphasis on credit scores so it is vitally important to ensure that your credit score meets the new standards.
So what do you do if your credit score is not quite where it should be ? There are a few simple ways to raise it. Hypothetically the easiest way to improve your credit score is to pay off all of your credit cards debts in full at the end of every month. this helps you avoid carrying balances on your credit cards and will raise your credit score.
credit ratings affect refinancing
However credit reporting bureaus have a few secrets that can trip you up. The first on the list are inquiries . Every time you apply for credit, the lender pulls a copy of your credit report history. Inquiries can lower your credit score up to 5 points, so if your thinking about getting a home loan any time soon, you should try to make all your mortgage loan applications in a 2 week period. This way your credit report ratings only take a hit once.
When a bill has a pay by date on it, that’s the date by which your payment actually has to be processed. This does not mean the mailing date. If you are mailing in your credit card payments, make sure that you mail the envelope at least 7- 10 days before your actual due date to ensure that the credit card companies receive your payments on time.
A faster and much more convenient method for paying your credit card bills is to make all payments online. That way you will be able to make your payments on the actual due date with out having to calculate the mailing ti me. Nowadays all banks and credit card companies offer online access for their customers, so if you are not set up for online payments, just contact your bank and they will be more than happy to set up and show you how to use your online account.
If you do carry a balance on your credit cards, try to keep the balance low relative to your maximum credit limit. A good rule of thumb is to keep your balance no higher than 25-30% of your total credit limit. If your balance is higher than that in proportion to your credit limit, lenders will think that you can’t manage your money and your score will suffer as a consequence.
Credit scores are designed to determine how risky you are as a borrower, the higher your score, the less risky your are considered as a borrower, and you’ll get better interest rates when you apply for a loan.
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