The three-digit number that is your credit score puts a big impact on your ability to qualify for a mortgage loan and what interest rate you will be offered. An interest rate plays a very significant role in how much home you can afford as it makes a dramatic impact on a monthly mortgage payment.
Just a quarter of a point or half of a percentage point on interest can see hundreds of dollars in change on a monthly mortgage bill. It can also be a huge amount extra paid out over the entire life of the loan.
Credit scores can range from 300 to 850. A good credit score is considered to be around 670 to 739, a very good score is rated at 740 to 799, and an excellent score is anything at 800 or above. These ratings are from FICO, a leading credit-scoring company.
The higher your credit score is, the easier it is to qualify for a loan and receive the lowest interest rates available at the time of your mortgage application.
Here are some ways you can boost your credit score to achieve the best interest rate possible:
Read Your Credit History Carefully
Every person is allowed one free credit report a year from the three main credit scoring companies of Experian, Equifax, and TransUnion. You can receive a report by going to the website annualcreditreport.com or reaching out to one of the three companies. When you receive your report look over every detail of it. It is not uncommon for a report to have an error that may be causing a negative impact to your overall score. If there are mistakes make sure to have the agency that made the report correct their error. This should be done at least two month prior to applying for a mortgage.
Pay Bills On Time
Late or missed payments make a significant hit to your credit score.
Decrease the Balance on Credit Cards
Even if you pay all of your credit card minimum payments on time every month, you can still be carrying a high balance. This is called a high utilization rate. For example: if you have a card limit of $3,000 and you are carrying a balance of $2,000 this is 60% of your total credit. It is better to keep balances below 30% and best to keep them under 10%.
Boost Limited History
If you have little to no credit history one of the easiest ways to begin a credit history or take your history out of the limited category is to become an authorized user on someone else’s credit card. Just make sure you are adding yourself to a card that has an owner with good credit standing.
Consider a Credit-Builder Loan
Some banks and credit unions offer these loans that are designed to help an individual build up a credit history as on-time payments are made.
Don’t Make Big Purchases
If you are hoping to apply for a mortgage loan you will want to put other major purchases on hold for a little bit, such as the purchase of a car. It is also not a good time to open or close any new credit cards until after you receive mortgage approval.
If you are looking for the absolute lowest rates making sure you have the best credit score possible is one of the most reliable strategies to do so.
For more information on your best mortgage options in Mission Viejo and California please contact me at any time.
- 50 Ways You Might Get Declined for a Mortgage
- Why Mortgage Officers Offer Different Rates to the Same Applicant
- Pros and Cons of Applying for a Mortgage with your spouse
- 5 Steps to Protecting Your Credit Score During a Pandemic
- 5 Things NOT to Say When Applying for a Mortgage
- Do you really need a 20% down payment?
- How to Avoid Home Buyer Remorse