If you are in the market for a mortgage there are steps you can take to improve the interest rate you qualify for. Here are the best tips for improving your credit score and your interest rate.
There are a number of factors that affect the interest rate you qualify for when shopping for a mortgage loan. Your credit is the factor you have the most control over. Before applying for a mortgage you need to go through your credit reports with a fine tooth comb and look for errors.
Credit reports contain a record of all your financial dealings with lenders. The reports contain records of your spending and borrowing habits and how you repay your debts. Mortgage lenders use this information to gauge how much of a risk you are for lending money to.
It is from these credit reports that your FICO credit score is derived. The FICO score is created by a company called Fair Issac Corporation; hence the FICO score. Mortgage lenders have lending guidelines in place based on an individual's credit score. Your approval status and loan terms including interest rate will be largely decided by the state of your FICO credit score.
Your credit score is derived from a number of weighted factors. Here is a breakdown of the factors involved in creating your credit score.
35% is derived from your repayment history of on time payments
30% is derived from your debt-to-income ratio
15% is derived from the length of time you have used credit
10% is derived from the type of credit you use
10% is derived from the number of recent credit inquiries / recent activity
As you can see nearly all of these factors are directly under your control. Before you start applying for a mortgage you should take six months to concentrate on tuning up your credit. After you have gone through all three of your credit reports for errors, concentrate on paying down the balances on your credit cards and closing the accounts. This will improve your debt-to-income ratio and have a significant impact on your credit score. Make sure you are making all of your payments on time; you want to have at minimum six months worth of on-time payments on your credit history.
Ensuring you have good credit is the first step to qualifying for the best interest rate. Doing your homeowner and shopping for the best deal on your mortgage is the second step. To learn more about saving money on your mortgage loan, sign up for a free mortgage guidebook.
To get your free mortgage guidebook visit RefiAdvisor.com using the link below.
Louie Latour has twenty years of experience in the mortgage industry as a mortgage broker. He is the owner of Mortgages Refinance Advisor, a mortgage help site devoted to saving homeowners money with a free guidebook