Mortgage lenders normally depend on your credit report to determine whether or not you qualify for the best mortgage rate. The first step you should do to qualify for the best available mortgage rate is to know your credit score. Before you go to the bank and request for a loan, you must get a copy of your credit report. You need your credit report so you have an idea what is in it, and see your credit score. That means the process of qualifying for a mortgage start long before you decide to make an important purchase.
Generally, there is no need to worry if your score is above 720. This will allow you to get the best mortgage loan term. You may consider to improve your credit score if you want, but you will still have the same terms you are offered. Scores between 621 to 719 may get a premium of two percent or more on the loan. The lower you are the higher premium you get.
Since your credit report is a deciding factor in getting the best mortgage rate, you need to make sure that all the details in it are accurate. Mistakes on your credit report may hurt your credit score and cause a big difference in the rates you will be charged on your mortgage loan. Over a long term mortgage, the difference can stretch to hundreds of thousands of dollars depending on the size of the loan. In case you see any error or inaccacies, try to correct the wrong input. You can start fixing them by noticing the errors on a copy of the report. Then, write a letter to the credit bureau about the problem and make a request to investigate the inaccuracies. Insert any proof you have, and send the it by certified mail.
Another smart move to qualify for the best mortgage loan is to pay your bills on time. The largest portion of your credit score is base on whether you pay your bills on time. There should be no late payments on your credit report for at least six months. This is essential when applying for a mortgage as lenders want to make sure you will regularly pay your mortgage on time. If skipped or late payment appears in your credit history, lenders will see you as a risk and risky borrowers get higher rates or they do not qualify to get a mortgage. Mortgage lenders take late payments seriously, so avoid any late payment or even a few days late when you are planning to apply for a mortgage.
You will also need to pay down your credit card debt to qualify for a good loan. Just about one-third of your credit score is determined on how much of the available credit you have snapped. It would be too much if you have already used more than half of your available credit. It will not look good on lenders if your credit limit is $ 10,000 and you owe $ 6,000.
Anytime your debt-to-available-credit ratio goes over 50%, expect to get penalized. Do not let your balance stay above half the credit limit for a long time. Bringing down your balance to less than half the credit limit on each card will have an immediate and positive impact on your credit score. Also, do not apply for new credit cards or other consumer loans as those inquiries reflect on your history, and each inquiry can bring your credit score down by 12 points.