Securing a mortgage means getting your credit score in perfect shape. This one step can save you thousands in the home-buying process and over the course of your loan. Scores below 600 often have more trouble receiving financing and scores 740 and higher will usually receive the best rates as they pose less risk to the lender. See how lenders use your credit score and why it is important in the mortgage process.
Here are some tips on how to prepare your credit score for the loan application process:
Pull your Credit
Many sites often provide a free yearly report. Check providers such as AnnualCreditReport.com and CreditKarma.com to see where your credit score stands now. Do this as early as a year prior to application, so that any necessary corrections and building of credit can take place.
Check your report for false reporting, incorrect information, old/bad debt, etc. These can be negatively impacting your credit score without your knowledge. Your report will provide links and contact information for fixing such errors should they appear.
Address these as quickly as possible as these may show lenders an inability to repay debts. A drop of up to 90 points can come from just one missed payment if you have been current for an extended period of time. This will take a time to build back up, be patient.
Pay Off Balances
Your credit utilization should be no more than 20-30 percent of your total credit. This should be even lower for potential homebuyers. Paying down your cards will boost your score and lower your debt-income ratio which lenders consider when making approval decisions.
Work with your Providers
Missed payments can sometimes be excused or overlooked if you are proactive about contacting the issuer or lender. Often, an acceptable explanation for the missed payment can lead to a waived fee or penalty, thus saving the reporting to the credit agencies.
No Sudden Moves
Once your score is in an acceptable position, refrain from doing any kind of new activity and continue to remain current on your bills. New activity can include opening a new store card, making a large purchase on credit, or applying for other loans. These changes will often adversely affect your score.
Photography by [garagestock] © shutterstock.com
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