Credit scores can have a dramatic effect on a borrowers ability to get the best rates for many types of financing including a home mortgage and a car loan.
If your credit score does not meet minimum standards you may not even have the ability to get a home mortgage period!
There are a number of factors that the credit bureaus use to calculate your credit score. One of the most important factors they use is your past payment history which generally accounts for 35% of your credit score. In the mortgage article how to improve a credit score, all the various ways you can achieve and maintain a great credit score are discussed. If you pay attention to these credit scoring factors you will be well on your way to achieving an exceptional credit score.
When it comes to your home there are ways to improve a credit score with specific home finance tips.
Pay Your Mortgage On Time
It goes without saying that paying your bills on time is a must if you want to have excellent credit. Above all else you want to make absolutely certain you pay your home mortgage when it is due. As mentioned above, past credit history is a critical factor on how you be viewed by a lender when applying for financing.
There is nothing that will hit your credit harder than a missed mortgage payment. Credit scoring agencies will look at a missed mortgage payment in a far more negative light than a missed car or credit card payment. If at all possible you should always consider making your mortgage payment before other bill that are due.
Check Your Credit Report For Errors
While working in the Real Estate industry for many years as a Massachusetts Realtor I have had the opportunity to see 1st hand that it is easy for credit bureaus to make mistakes on a persons credit report. Do you realize that a credit report error can cost a borrower some serious money? With a mistake on your report your credit score will be negatively impacted. This makes it vital that you periodically check your credit report for errors but certainly before you try to refinance a mortgage.
If you find an error in your credit report you should make certain that you get it corrected right away! Here are the necessary steps you need to take in order to fix credit report errors. You will want to make certain the errors are corrected before applying for financing.
Postpone Financing Until Your Credit Is In Order
Depending on whether you have discovered a credit report error or had a legitimate blemish on your record in the past could be a reason for postponing a refinance. Removing a credit report error can take a little bit of time but could be worth it in the long run if you factor the difference in rate you will pay without the correction. Unless mortgage rates are climbing dramatically and locking a mortgage rate makes more fiscal sense, you will want to get your financial house in order 1st.
Sometimes there can be unpaid bills that took place a long time ago that come back to haunt you especially if they were turned over to a collection agency. Something as small as a $50 unpaid phone bill could come back to bite you in the form of a higher interest rate on your loan. Just a 1/4 point difference in rate could translate into thousands of dollars over the life of the loan. The good news is that as time goes by the blemish becomes less important in scoring factors.
Paying Off 2nd Mortgages and Equity Lines of Credit
On the surface it may seem like paying off a 2nd mortgage or home equity line of credit (HELOC) is a good idea but it may not be, at least in terms of a credit score going forward. Your credit utilization or what you owe your creditors makes up 30% of the scoring factor that credit companies use to determine your score.
The closing of existing revolving accounts will typically adversely affect the ratio and therefore have a negative impact on your FICO score. You may want to consider lowering the balance but not paying off the loan in one shot.
Pay Your Property Taxes and Utility Bills On Time
If you find that you are strapped for cash there are certain bills that should always be paid 1st such as a mortgage, car loan and credit card bills. It makes sense to pay these bills 1st because they will have the greatest impact on your credit score. This however, does not make paying your property tax and utility bills on time unimportant.
The good news is that it will usually take a serious delinquency before missed payments are reported and negatively impact your credit score. Most of the time late payments on your property tax bill won’t effect you at all, as these are not reported to the credit bureaus unless a lien is placed on your property.
Always keep in mind how you manage your home finances affects your ability to refinance and get the best mortgage rates!
About the author: The above Real Estate information on Improving a credit score with home finance tips was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at firstname.lastname@example.org or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 24+ Years.
Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!
I service the following towns in Metrowest MA: Hopkinton, Milford, Southboro, Westboro, Ashland, Holliston, Medway, Franklin, Framingham, Grafton, Hopedale, Mendon, Upton, Northbridge, Shrewsbury, Northboro, Bellingham, Uxbridge, Worcester and Douglas.