- Posted by: steve
- Category: mortgage rates
Buying a house can be one of the most exciting and terrifying purchases you make. Securing a good mortgage rate will go a long way toward calming some of the fears you may have about this purchase.
The process of getting a good mortgage rate starts with discovering your credit score. And the time to do this is at least a year before you plan on buying a house. This will give you time to review and understand your credit score and make any changes necessary.
Why Do I Need a Credit Report?
When you get your report, review it carefully.
- Make sure your name is spelled correctly.
- Check previous addresses.
- Confirm that all account numbers are accurate and really are yours.
You can easily dispute anything that is incorrect with the bureaus online.
What’s a Credit Score?
Next, check your credit score. Your score consists of positive and negative information in the following areas:
Your payment history: Do you have a history of late payments, or do you pay on time?
Amounts owed: How much do you currently owe?
Length of credit history: How long have you had credit?
New credit: Have you made any recent large credit purchases?
Types of credit used: This would be credit cards, loans, and cash advances.
Ideally, you want a credit score of 740 or above. If your score is 670 or below, you could have problems securing a good mortgage rate.
Repeat this over and over again: The higher my credit score, the lower the interest rate on my mortgage.
Learn more about increasing your credit score.
The difference between the best and worst interest rates on your mortgage can vary by a full percentage point and a half. That can be a lot of money over the life of the loan.
This is why it’s important to know your credit score and understand how you handle credit affects that score
When you co-sign for a loan or card, you are saying that if the person getting the loan can’t keep up the payments or is late, or misses a payment, you are responsible. It also shows up on your credit report and can affect your credit rating.
It’s all right occasionally if you make a minimum payment on a card, but it’s a red flag to a lender if it’s done regularly.
If you are taking out cash advances, it can indicate you’ve lost your job or you are underemployed.
Your Credit Score: The Key To a Good Mortgage Rate
As you can see, many factors influence your credit score and therefore your ability to get a good mortgage rate. Here are a few things you can do to improve your chances:
- Keep your balances low. (One way to push up your credit score is to pay down credit card balance by 30% of the total limit.)
- Duh! Pay bills on time.
- Eliminate disputed errors on your credit report.
So, the first step in buying a house is to learn and understand your credit score.
For a comprehensive overview of the mortgage process, read A Complete Mortgage Guide for Home Buyers. Here you will find definitions of terms and explanations of the various processes involved in buying a house.