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It can take as little as a one point difference
in a credit score to qualify for a better mortgage. A borrower
with a top-tier credit score, one greater than 720, can expect
to receive the best rates available in the market. However, if
your credit score is less than 720 the interest rate you pay
can increase. The interest rate gap is largest when the credit
score falls below 660. The range of credit scores, as depicted
below, shows how lenders view borrower credit scores in relation
to risk, which is a key factor in determining interest rates:
720 and higher: very low risk
680 to 719: medium-low risk
660 to 679: medium risk
620 to 659: medium-high risk
619 and below: high-risk
A key first step home buyers and/or
mortgage shoppers should do at least three months prior to applying
for a mortgage is obtain a credit report from the three national
credit reporting agencies, Equifax, TransUnion and Experian,
to ensure their credit files are accurate. Any inaccuracies and/or
outdated information in the credit file can be disputed by sending
the specific agency a written dispute and supportive documentation
to request the item be reinvestigated, verified as to its accuracy,
and removed.
We have partnered with a leading company
based in Denver, CO that specializes in Credit Optimization and
handling disputes with the national credit agencies. We can provide
you with more information about this service and also provide
you with a free credit score analyses and review.
Quick Tips for Raising Your Credit Score
- Keep balances low on credit cards. High
outstanding revolving debt can affect a score.
- Be aware that paying off a collection
account will not remove it from your credit report. In fact,
it can lower your score in the short term because the activity
is re-set on the account. Talk to an expert for strategies
to remove collections from your report before you pay them
off.
- It’s okay to have loans and credit
cards - but manage them responsibly. In general, having credit
cards and installment loans, and making timely payments, will
raise your score. Someone with little or no credit history,
for example, tends to be higher risk than someone who has managed
credit responsibly.
- Don't open new credit cards that you don't
need just to increase your available credit. This approach
could backfire and actually lower your score.
- Don't close unused credit cards as a short-term
strategy to raise your score.
- Re-establish your credit history if you
have had problems. Opening new accounts responsibly and paying
them off, and on time, will raise your score in the long term.
- Do your rate shopping for a given loan
within a focused period of time. Credit scores models distinguish
between a search for a single loan and a search for many new
credit lines, in part by the length of time over which inquiries
occur.
- If you have missed payments, get current
and stay current. The longer you pay your bills on time, the
more likely your score will increase.
- Apply for and open new credit accounts
only as needed. Don't open accounts just to have a better credit
mix - it probably won't raise your score.
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