When was the last time that you checked your credit score?
If you’re like most Americans today, it’s probably been a while and what you don’t know about your credit report is likely costing you money!
Working through all of the negotiations that are necessary to reach a sales agreement on the house you want to buy can be very overwhelming, and that’s just the start.
After you agree with the seller on the terms of the deal, your next step is to iron out the details of a mortgage.
Many home buyers today spend all of their effort focusing on getting the best deal possible from the seller, but then leave piles of money on the table by coming to their mortgage lender completely unprepared. If you don’t know what your credit score is and why, you are almost certainly leaving money on the table.
How Your Credit Score Can Impact Your Mortgage Rate
Your credit score is a huge factor in determining what type of interest rate a bank is going to offer you. According to MyFico.com’s rate calculator, a borrower with a credit score of 760 in Florida can get a 30-year rate of 3.5%. At the same time, a borrower with a credit score of 630 can expect a 30-year rate around 5.1%.
This difference in interest rates equals nearly $200 per month on a $200,000 mortgage, which adds up to almost $70,000 more in interest over the life of the loan. There is clearly a great deal of savings to be had from having a better credit score, and borrowers with better credit scores will also have more loan options available to them.
How To Improve Your Credit Score
The first step in improving your credit score is to actually pull your credit report.
There are a number of services that will pull your score for you at no charge, but in this case you are going to want to find a paid service that will provide you with a full report on your score and what you can do to improve it.
The biggest red flags on any report are accounts that have gone into collections. If you have any of these, you are going to want to pay them off as quickly as possible. Once you clean up any old collections accounts, you can write letters asking the companies to remove them from your credit report. You’ll be surprised how many companies will do this.
It can also be helpful to write letters asking companies to remove any late payments that are noted on any of your accounts. Even if they have no reason to do so, many companies will remove negative information from your credit report if you simply catch the right person on the right day and ask nicely.
After you take care of as many of the negative aspects of your credit report as possible, the only thing left is to pay down as much of your existing debt as possible. This is particularly applicable to any revolving credit accounts (like those credit cards) that you might have. Banks look at revolving credit as a percentage of your credit limit, so asking for your credit limits to be raised can help too.
Depending on where you credit score lies, sometimes even as few as ten points can make a substantial difference in your mortgage rate. You will be surprised how easily you can make up those ten points by simply writing a few letters, raising your credit limits, and paying down some balances.
Then when you sit down with your mortgage lender, you will know that you are getting the best possible rate.
For more advice on navigating the home buying process, download our free eBook, Your Comprehensive Home Buying Guide today.