Boost Your Credit Score BEFORE You Shop for a Mortgage

Posted by Steph Kaye on Sunday, May 22nd, 2016 at 11:06am.

Most mortgage applicants know that the higher their credit scores, the lower the interest rate when purchasing a mortgage.   The mildest decrease in interest can save you a great deal of money over the life of a 30-year loan.  Short term efforts to boost your credit score will save you money in the long term.  

Lang Premier Properties advises consumers to begin credit improvements six month prior to shopping for a mortgage and one year is even better.  Consider utiziling the services of a credit monitoring company in order to search for gaps in your credit score and effectively repair them. 

It is best not to pull your credit report from all three major credit bureaus simultaneously.  You are entitled to only ONE free copy of your credit report annually and it is more sensical to pull reports one at a time over a period of a year. In the event that you need to access your credit report later on you can still obtain one of the free copies from a credit reporting agency you have not yet utilized.  Perhaps you have major errors on your credit report and want to verify against all three reports.  Only then would it make sense to pull all three free reports simultaneously in order to correct the errors.

SEARCH FOR ERROS IN NEED OF CORRECTION

Be on the lookout for accounts that are listed as still being open upon reviewing your most current report.  If accounts that you no longer have are still listed as "open", then you should verify that the accounts were indeed closed and have your credit report updated to reflect those closures.  In the event that you have open credit card accounts with small balances and you no longer use those accounts, contact the credit card companies to have those accounts closed.  Too many open credit accounts are viewed by lenders as "risky" and they have the power to negatively impact your credit score.  

You can also negatively effect your credit score if you close credit card accounts with low or zero balances.  Credit scoring systems compare the amount of credit which you are able to access verses how much you have actually borrowed.  Canceling a credit card with a high limit while maintaining a balance on other cards carries a negative effect as the amount of debt you have in realtion to your available credit goes up since you've closed an account.  Always speak with a credit counselor regarding the closing of accounts and the effect on your credit score.  Mortgage experts maintain relationships with staff credit experts who are qualified to advise on how to readjust credit balances and accounts in order to positively effect your credit score.  

It is necessary to dispute open credit accounts that are listed on your credit report if you've never applied for them.  Credit reporting agencies will verify the validity and identity of those accounts with the lender and remove them  from your record if they are not verifiable.  If you have been victimized by an identity thief, the process of removing these accounts will be much more difficult and you should visit the FTC.gov website on dealing with identity theft.

DO NOT OPEN/APPLY FOR NEW LINES OF CREDIT

In a perfect world, you should not apply for credit between the time you close on your home to at least six months prior as all credit inquiries will downgrade your total credit score.  The result: you will pay higher mortgage interest while being approved for a lower amount than what is needed.  You could also be completely denied a mortgage loan. In the event that an emergency arises and you find it necessary to borrow funds, limit the borrowed amount as well as the number of lenders you ask for a loan.  Multiple credit score inquiries can result in an immediate loss of points on your credit score. If you are able to wait some additional time after you've applied for a loan, your score can rise if no additional credit inquiries are made for other credit applications until it comes time for the mortgage loan credit application.

ELIMINATE AS MUCH DEBT AS POSSIBLE

Large amounts of debt in relation to the amount of credit you have available on your credit cards and other credit accounts also reduce your total credit score. Credit scoring methods take into account debt utilization factors as part of their scoring process.  The credit score looks at your credit usage across all lines of credit.  While there is no concrete rule in place as to below what number credit utilization you should keep at. Some experts suggest a credit utilization of 1-25% in order to give the credit rating agencies something to work with while other  lenders will be less willing/able to lend you money whether for a home or for some other borrowing need if your credit utilization starts reaching and/or exceeding 45-50% .  Pay off as much debt as you can so your credit utilization is below 40%.  This will enable you to have a better chance of qualifying for a mortgage loan and getting approved for a desireable amount.  House-poor situations are best avoided by borrowing only that amount which you can afford to payback.

PAY ON TIME

Thirty-five percent of your credit score can be attributed to your payment history and one late payment can drop your score very quickly, especially when you have a high credit score. Don't miss payments and paying the minimum amount due is better than not paying anything at all.  Missed payments can cause your interest rates to jump on certain accounts and you can be faced with hefty late fees that only serve to set you back even farther. Always pay on time, even if it is only the minimum amount due, and your credit score will recover as your debt utilization comes down.

You can control your credit score and a higher one will ensure you pay less over time in interest which is a big money saver. Make efforts to pay down debts with timely payments and address errors on your credit report and you will significantly boost your credit score, saving you money in the long run when it is time to apply for a mortgage.  If you are in need of a referral to an experienced mortgage broker or credit counselor, your experinced realtor will know how to appropriately guide you in order to begin your new home pursuit on the right foot.  

If you'd like to learn more, please don't hesitate to message Lang Premier Properties online or call us at 1-855-526-4466.

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