Credit ratings play a pivotal role in the approval of a mortgage loan. Many people believe that if they have bad credit they are stuck with it and have no options. On the contrary, there are some steps a prospective home buyer can take in order to improve their credit score before they apply for a mortgage loan.
If your credit rating is at its lowest, you should wait at least a year to apply for a mortgage loan. During this year you should take the time to rebuild your credit rating. If you do apply for a loan within this time period and are approved, chances are your mortgage rate will be higher than it would have been had you waited. Waiting for a year could save you thousands of dollars in the long run.
Your credit rating will suffer if your cards are charged to the limit. Not surprisingly, it will improve if your outstanding balances are paid off, especially if they are paid off before you apply for the loan. You may also want to consider consolidating your debts in order to create one low monthly payment. At that point you will need to establish a pattern of timely payments.
The three major credit reporting agencies in the United States are Experian, Equifax, and TransUnion, and consumers are allowed by law to receive one free credit report per year. Statistics have shown that at least 60% of Americans that check their credit using one of these agencies find false or incorrect information. If errors are found be sure to take action to have the incorrect information removed from your report.
Your credit rating can be reduced by submitting too many mortgage applications within a designated period of time. Shopping online to get mortgage companies to bid on your loan may be a better option, and then choose only one company to apply with.
Buying major appliances to furnish your new home during the loan application process is a bad idea, as is applying for new credit cards. A sudden increase in spending will make lenders suspicious of your financial stability and could result in a denial of your mortgage loan.
Choose reputable lenders when you are looking for a mortgage. Lending agencies that are less than reputable may result in penalties even after the loan is repaid. It can also indicate to lenders that you are a credit risk if you use a finance company.
