There is no doubt that your credit scores will affect your chances of getting a mortgage and the possibility of getting the best interest rate available. Your credit scores and your credit report are the two primary tools used to decide if you get a mortgage and the interest rate you will have to settle for. This means that you should take steps to improve your credit scores and your credit reports. You can begin by obtaining your free credit report, as provided by federal law, from Experian, TransUnion and Equifax. These reporting agencies also create credit scores that are used by lenders. You can also get the scores by paying a small fee. CreditKarma.com provides the free credit reports and scores that are generated by TransUnion and Equifax. This website will also identify what items on your credit report weigh the most in calculating your credit score. We are providing suggestions on how to improve your credit scores for the best mortgage rates.
Your credit report will identify all of your credit obligations with mortgage lenders, banks, credit unions, credit card issuers, and car financing companies. Generally, utility accounts and medical bills are not reported. Examine each reported item for accuracy and challenge any inaccurate information. The credit bureaus will provide a method for disputing your credit report.
Next, look at the balances you typically carry. Compute the percentage of credit utilization by dividing the balance by the credit limit. The number will indicate the amount of the credit line that you use. Keep in mind that lenders like to see a smaller percentage used. So, one way to improve your score is eliminate high balances; pay your debts down. Don’t close an account if you get the balance to zero, because this will have a negative effect on your score.
The next step is to challenge payments that are reported as late. You may find that you made a payment on time, but the credit company posted the payment late. An extensive history of late payments can cause your score to drop significantly. Making every payment on time will improve your score significantly.
Don’t apply for credit from several sources because the number of credit inquiries will also affect your credit score. The inquiries will remain on your report for 2 years.
Consider consolidating multiple credit cards from the same issuer into the oldest credit card. The customer service rep can discuss this with you. Only do this if you can keep your credit accounts that will have a new zero balance. This step would improve your credit utilization percentage.
Your credit score will also be based on how long your credit accounts have been open. Newer accounts do not count as much as older accounts do. If you have credit scores that are not great, then discuss the reasons candidly with a mortgage broker who has access to multiple lenders. A broker usually knows the lenders that work with the credit challenged.