8 Ways to Improve Your Credit
When you get ready to buy a house, your credit will become the center of your attention, and the attention of your lender. You may qualify for a loan based on your income but it is your credit score that will determine your rate. The interest rate your loan is eligible is based on your credit. This affects your monthly payment and the amount of your monthly payment determines the actual purchase price of the home you qualify for. In what way, you may ask? Here are a few examples:
Purchase Price of Home Interest Rate (based on credit) Monthly Payment (principle & interest)
150,000 3.0% $ 610.00
150,000 4.0% $ 691.00
150,000 5.0% $ 777.05
You can check different scenarios on a monthly mortgage calculator here.
Some other things you can do to improve your credit are:
1. Check for and correct errors in your credit report. Mistakes happen, and you could be paying for someone else's poor financial management.
2. Pay down credit card bills. A best practice is to keep about 30% of your card with a balance. Believe it or not, paying it down to zero each month does not help build up your credit score. However, transferring credit card debt from one card to another could lower your score.
3. Don't charge your credit cards to the maximum limit. Keep them at least 60% paid!
4. Wait 12 months after credit difficulties to apply for a mortgage. You're penalized less for problems after a year.
5. Don't order items for your new home you'll buy on credit, such as appliances, until after the loan is closed. The amounts will add to your debt.
6. Don't open new credit card accounts before applying for a mortgage. Having too much available credit or brand new credit can lower your score.
7. Shop for mortgage rates all at once. Too many credit applications can lower your score, but multiple inquiries from the same type of lender are counted as one inquiry if submitted over a short period of time. (usually 7 - 10 days)
8. Avoid finance companies. Even if you pay the loan on time, the interest is high and it will probably be considered a sign of poor credit management.
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