There are many misconceptions about what you need to do to get your credit ready for financing your new home or refinancing your existing mortgage. Here are five valuable tips to get yourself on the right track.
You may be asking “Why is this so important?” The better your credit score is, the better potential for a lower interest rate, giving you a lower payment and saving money on the amount of interest paid over the life of your mortgage. It is always in your best interest to obtain one free annual credit report to keep on top of any errors your creditors may have made. Make an appointment with one of our mortgage experts if you would like help analyzing your credit.
- Keep up your credit score. Your credit score is determined by how well you pay existing creditors on a consistent monthly basis. If your payment goes 30 days past the due date your late payment will be reported to the credit bureaus. The longer your history with no late payments reported, the better your credit score will be.
- You don’t need to pay off all your debt in order to achieve a higher credit score. While it’s always favorable to have less debt, it’s not always best to have none. Most lenders require several tradelines to obtain financing. If you have no history of tradelines you will have no credit score, which will make you ineligible for financing.
- Increase your credit score in a relatively short period of time by paying down revolving credit cards to less than 50% of the credit line. Even if you consistently pay the minimum payment on time each month your score will not reach its potential if the balance remains above 50% of the total line.
- Missing your payment once can be a big deal. Even if you missed just one payment within the last 12 months, your credit score can decrease significantly. The closer the delinquency is to the time you apply, the lower your credit score will be.
- If you have had a collection account, be sure to obtain a written receipt and save it in case the collection agency did not update your credit report with accurate information. This is very common and it can be hard to prove you paid without a receipt.