Credit Tips to Score a Better Interest Rate
CREDIT REPORTS & SHOPPING FOR A MORTGAGE
As part of the pre-approval process, we generally run a credit report for all loan applicants. Be sure to limit credit report inquiries if you’re shopping for a mortgage with various institutions. You have a window of 30 days when inquiries from the same type of creditor (i.e. mortgage providers) will not negatively impact your credit score. Keep in mind, each inquiry will still appear on your credit report for one to two years. If you feel the need to run your credit, we can do so at no cost and will provide you with all the information you need to shop for a mortgage. Alternatively, you can run your own credit online for about $25 but you are entitled to one free credit report annually. Many of our clients use annualcreditreport.com because it’s run by the 3 major credit bureaus. Many other for-profit companies only give you a free credit report if you sign up for ongoing credit monitoring services.
APPLYING FOR NEW CREDIT
Avoid applying for new credit for two to three months before applying for a mortgage. When you apply for new credit— such as credit cards, car or student loans—you are increasing the amount of your outstanding debt. This may make it more difficult to qualify for a new mortgage. Additionally, each new creditor will likely run a new credit report. The additional inquiries could possibly reduce your credit scores and affect your ability to qualify for the best interest rate.
CLOSING UNUSED CREDIT CARD ACCOUNTS
We do not recommend closing credit card accounts—even if the card(s) are not in regular use. Your credit score is partially determined by the percentage of your credit that is being used vs. unused. Therefore, closing a credit account can actually have a negative impact on your score by increasing the percentage of credit being used. You may wish to hold off taking action when applying for a mortgage to prevent hurting your credit score.
PAYING OFF PAST–DUE BALANCES
It’s usually a good idea to bring all of your past-due accounts current. However, if the account has gone into collection then it may be better to postpone paying it off. Paying off those types of accounts brings the account activity more current, which can bring your credit score down. The best thing to do is to consult with your mortgage or tax professional before you pay off any debts other than your regular, recurring monthly expenses.
HIRE AN EXPERT TO FIX YOUR CREDIT
If you notice significant errors or legitimate delinquencies on your credit report, you may consider turning to a professional credit repair company. They can help remove the negative impact of those accounts and increase your credit score. In some cases, the credit repair process can take several weeks to complete, so it’s beneficial to get started on this as early in the process as possible. Since higher credit scores generally lead to lower interest rates, it’s well worth the expense of having your credit repaired. The savings you’d have over the life of the mortgage may far outweigh the cost of the credit repair.
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