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There are a lot of things that go into buying a home. Not only do you have to consider the amount that you have in your account but you have to take a look at other factors too. All of these things can affect your mortgage rate, which could have you paying much more than you bargained for.
One way to get a great mortgage rate is to amp up your credit score though it’s not something you can do overnight. Making a long-term plan to improve or build your credit over a long period of time can help you get a solid mortgage rate.
Now is a great time to try and get a low mortgage rate, as rates are at a record low. On top of that, there is no longer the dreaded refinance rate, coming to an end in July of this year. Typical credit scores range from 300 to 850 and a good score ranges from 670 to 739. If yours is not quite there, we’ll share how you can get it there below.
1. Check Credit History
With many of the top credit scoring companies, you’re allowed one credit report per year. It’s worth checking it out so that you can browse your history and check for any discrepancies. It will also give you a good idea of where you are at with your credit and how you can improve.
If you’ve missed payments, had accounts closed, or even filed for bankruptcy, all of those things may affect the rate that you qualify for. Make sure to check all three credit scores, including your Experian, Equifax, and TransUnion.
2. Pay Bills on Time
When you are late with payments or miss payments, it can drag down your credit score. One of the main reasons is because you start to seem unreliable to lenders. Paying things on time and paying them down fast is perhaps the easiest and fastest way to bump up your credit score, something that you should start doing if you’re looking into buying a home.
If you struggle with this, consider automated payments, which come out of your account each month like clockwork so that you never miss a single one.
3. Take it Easy
Apart from your credit score, lenders will also take a look at how much credit you have in use. For example, they’ll look at your credit ratings and see how much of your limit is in use. If it’s a large amount, they’ll likely increase your rate or slap you with disapproval.
Lenders look for things like that because they want to know that you will be able to pay things back. If you have a lot to pay your credit card companies, it seems like there won’t be enough left for your mortgage.
4. Build Credit
If you don’t have the best credit or you don’t really have any credit at all, you could start by building up your credit. To do this, you have a few options, including cosigning on someone else’s loan or becoming an authorized user on someone’s credit card.
This will at least give you some form of credit, adding it to your report so that you can start building up your score. If you’ve been inactive with your credit or don’t have much to show, lenders, are more likely to deny you a loan or hit you with a high mortgage rate, two things that you don’t want.
Make a Plan
When you’re thinking about buying a home, the first thing you should do is make a plan. Buying a home is a large investment, one that takes time to pay off. Every point on your mortgage rate counts, driving up your cost significantly the higher it is.
Before you purchase a home, consider your credit score and ways that you can improve it, allowing lenders to fight to get you the best possible rate around. Keep large purchases to a minimum and make sure that you pay things on time to boost your score and become an attractive loan candidate. You’ll be thankful that you did, racking up savings over the years and making your purchase worthwhile.