Home Finance How to Enhance Your Credit Score to Tap Low Mortgage Rates?

How to Enhance Your Credit Score to Tap Low Mortgage Rates?


If you plan to invest in a dream property in the coming year then take steps to enhance your credit profile. It will help to escalate your chances for loan approval and even reduce interest rates. Every lender determines the borrower’s capacity to repay with a credit history review. As soon as your mortgage application is submitted, they check credit reports maintained in the public domain. Credit details are used to determine approval and if they are willing then how much interest to charge.

Before you visit Sammamish Mortgage, the best Seattle mortgage company it is wise to review your credit and take steps to improve it.

Know your credit status

The first step towards enhancing mortgage deals is to create a baseline. Start with checking your credit reports and scores.

Learn how the score works

The majority of top lenders use FICO scores to approve. FICO uses positive and negative credit details to calculate the score. The five main categories applied include –

  • The amount owed – 30%
  • Payment history – 35%
  • New credit – 10%
  • Credit history length – 15%
  • Credit kind used – 10%

Each lender has their personal rules of managing existing loans and underwriting new ones. Credit is one important factor among several others that lenders consider while reviewing the loan application.

Fix credit report errors

If you detect errors in any reports instantly dispute them with the relevant bureau. Include supporting documents with the dispute letter with clearly circling disputed information. Use registered mail to send this letter. Credit bureaus have to investigate disputes and takes around 3 to 4 weeks. Even inform the creditor who offered the information. Both creditors and the credit bureau are liable to correct the wrong information on your report.

Eliminate disputed accounts

The credit report will be marked with disputed in case of errors. Ensure to close the disputed account before submitting a loan application. Lenders need disputes removed as they can calculate an accurate score.

Pay your debts

Amount owed category, according to FICO accounts for 30%, so if possible, pay your credit card debts to give your credit score a push upwards. Paying unsecured debts offers an optimistic impact allowing borrowers to acquire better mortgage rates.

Avoid late payments

Delayed payments of bills can leave blemishes on the credit report, so pay on time. It will help to keep the payment history positive. Annually check your payment history and credit report review to correct potential errors. Improving credit score is slow but late payments can push them down quickly. The worst things visible on the credit report are foreclosure, bankruptcy, and habitual late payments.

Bury delinquencies

Delayed payments stay on credit history for 7 years. However, if they occur fresh the damages are more. So, if you made a late payment recently then wait for 6 months before submitting a loan application. This will allow the old negligence buried down and look less negative. Besides, the 6 months of timely payments will give a bump to your credit score.

Wise use of credit

Follow the 3 golden rules to increase the FICO score.

  1. Maintain regular and timely bill payments
  2. Keep credit card balances low
  3. Avoid applying for new credit as much as possible

It is better to manage household cash flow because this will reduce late payment risks. If credit card accounts are revolved, it reveals the habit of overspending.

Decrease debt-to-income ratio

If your debt is higher relative to your income, then the lender will ask about your ability to repay the loan. The debt-to-income ratio means how much money goes out [debt] and how much comes in [income]. Lenders desire a low figure [as low as 40 to 42%]. It means you cannot spend more than 43% of your income on your debt payments. For lessening the debt-to-income ratio increase your income. You can pay outstanding bills or loans without borrowing more than your affordability.

Say ‘NO’ to new debts

Mortgage lender becomes suspicious about your financial stability if you incur new debt, even if the debt-to-income ratio is low. It is sensible to avoid credit-based transactions until your loan is secured. Even credit inquiries can impact the credit score, so stay safe until you lock the low mortgage interest rate.

It is crucial to apply for a loan when your credit position is good. Take some time to correct errors on the credit report. It can take a couple of months, but cleaning this up speeds the loan process and your chances to tap low-interest-rate increases.

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