Raise Your Credit Score Before You Apply For a Loan

In today’s market, your credit score is the most important aspect of getting a mortgage, and determining your mortgage rate. Start working on your credit scores three to six months before you plan to apply for a mortgage and buy a home.

Here are a few tips to boost your scores, before applying for a loan:

1. Find out your current scores.

You have three credit or “FICO” scores, one for each of the three credit bureaus: Experian, TransUnion, and Equifax. It’s important that you check all three scoring companies, as each score is based on information each individual credit bureau keeps on file about you. Get a free copy from each of the three bureaus once yearly at www.annualcreditreport.com

Scores range between 300 and 850, with a prime borrower typically having a score better than 720. Buyers with poor credit scores have all but been pushed out of the market. A higher score will lower your rate significantly.

2. Manage Your Credit Cards Responsibly.

Having credit cards that you pay on time will definitely increase your score. However, consolidating your credit card debt onto one card or spreading it over multiple cards will not improve your score in the long run. The most effective way to improve your score is by simply paying down the amount you owe. Avoid any unnecessary requests for credit. Ask a creditor to increase your credit limit- an often overlooked factor in your score is how much money you owe on your credit cards relative to your total credit limit. Generally, it's good to keep your balances at or below 25 percent of your credit card limit

3. Remove inaccuracies and negative fraudulent records from your reports.

A recent study by the U.S. Public Interest Research Group found that 25 percent of credit reports have mistakes serious enough to cause a denial of credit. If you want to remove something inaccurate from your credit reports, submit a letter of dispute to the credit bureau. If you want to remove something fraudulent from your credit reports, report the crime to the credit bureau’s identity theft departments.

Most updates take 30 to 60 days to appear on your credit reports. During this period, you should watch your credit reports and credit scores closely When your changes have taken place and your credit scores have increased, you should start the loan application process.