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by Christy Bieber | Published on Nov. 28, 2021
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Your interest rate could be much lower if you try them out.
When you apply for a home mortgage, potential lenders will carefully scrutinize your credit score. While your credit history isn't the only factor they consider, it's one of the single most important. A higher credit score can make a huge difference in the mortgage rate you're ultimately offered or even impact whether you'll be approved for a home loan at all.
That's why it's so important to do everything you can to increase your score before you move forward with borrowing. The good news is that there are actually a few ways to boost this score quickly if you're eager to buy a home and want to qualify for the best possible rate. Here are four of them.
If you're added as an authorized user on an account, it will show up on your credit report. If the card has been open for a long time, has a large credit limit and low credit use, and has a solid payment history, you'll get the benefit of all these things -- each of which has a huge impact on your credit score.
If you have any black marks on your credit report dragging your score down -- such as a late payment in the past -- you can ask creditors if they'd be willing to remove them voluntarily. This is sometimes called writing a goodwill letter.
Often, if you still have an account with the company and you have generally paid on time and been a good customer, creditors will be willing to do you this favor. If you have an outstanding balance and you agree to pay it in full if the creditor removes derogatory information, this can also sometimes be a successful tactic.
If there are errors on your credit report, your score could go down because of someone else's irresponsible behavior. You can dispute any mistakes or inaccurate information with each of the three credit reporting agencies -- Equifax, Experian, and TransUnion. After an investigation, the derogatory information should be removed if it wasn't legitimate, and your score will quickly go up when it does.
Credit utilization ratio, or credit used versus credit available, is one of the most important factors determining your credit score. It's second only to your payment history.
If you repay some of your debt and improve your utilization ratio, your score should go up. The impact of this move --and how much it changes your score -- will depend on how quickly you can repay a substantial chunk of what you owe. As a bonus, this won't just help your credit, but will also improve your debt-to-income ratio that mortgage lenders consider as another key factor in approving you for a mortgage.
By taking these four steps, hopefully you can qualify for a home loan at an affordable rate so you can borrow to buy the house of your dreams without spending a fortune on interest.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
The Ascent's in-house mortgages expert recommends this company to find a low rate - and in fact he used them himself to refi (twice!). Click here to learn more and see your rate. While it doesn't influence our opinions of products, we do receive compensation from partners whose offers appear here. We're on your side, always. See The Ascent's full advertiser disclosure here.
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