If you are thinking about purchasing a home or refinancing your current mortgage, it’s important to know what’s in your credit report, including the all-important credit score. When you have a higher credit score, on paper this shows the lender you are less of a risk and they will reward that with a lower interest rate. When your score is low, the opposite is true – you will likely qualify for a higher rate or have difficulty qualifying at all. If you find that your score is low, here are some things to do right away to improve it:
Get a copy of your credit report
By law, you can get a free credit report from Annualcreditreport.com once per year. You can also contact the three national credit reporting agencies – Equifax, Experian and TransUnion – and request a copy from each. One strategy is to request one per quarter to get an idea of how your credit changes throughout the year. Remember, the three agencies are independent of each other and the information may differ on all three reports. Verify that all three have correct information about your credit history. If there are any red flags or incorrect, inconsistent or derogatory information, it’s best to know ahead of time and correct it before going into the mortgage process. Removing them could boost your score quickly.
Find and fix any errors.
Besides wrong information, you should check for anything that looks like fraud or anything outdated. Check all the accounts that are reporting and make sure they match what you actually have. Check that the balances are accurate and verify that closed accounts are reporting as closed (and vice versa). If you do see an error, be sure to file a dispute.
Keep it status quo
If you are about to submit a mortgage application, you should stop most of your credit-related activity, especially applying for new credit, opening new accounts and making large purchases. If you can, avoid switching jobs (especially if the job is in a different industry) or any other major life changes until after the closing papers are signed.
Keep it low and don’t skip a beat
About 65% of your score is based on the amount you owe compared to the credit limits you have and your payment history. Lenders want to see that you can use credit responsibly, so if you can keep your balances under 30% of your available credit and never miss a payment, your scores should stay nice and high. Missing a due date by a few days may result in late fees, but missing an entire payment by 30 or more days will get reported to the credit bureaus and will have a significant impact on lowering your score. To keep your credit score high, keep balances low and never skip a payment!
Good credit takes time to build. Knowing what’s on your report and keeping it correct and up to date, keeping your balances low and always making on time payments will put you in the best possible position to improve your credit and boost your scores.
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South County Mortgage is a licensed mortgage brokerage providing better than bank service and better than bank rates to Rhode Island residents for over 20 years. Visit our website for more info, www.scmtg.net.