Unless you fall into the very rich category, one of the most expensive loans you will ever get will be your mortgage loan. With even modest homes in nicer neighborhoods costing well over $150,000 these days in most parts of the country, even a quarter percent difference in the interest rate on your mortgage loan can account for hundreds of dollars per year, just in excess interest charges. |
You need to fully understand that a mortgage loan is significantly different from a personal loan or a signature loan. Based on the amount of money you will be borrowing, which translates into higher risk for the lender, it is clearly in your best interests to start paying attention to your credit score, how it is calculated, and what you can do to raise your credit score.
In the eyes of the mortgage lender, the higher your credit score is, the less risk they feel like they will be assuming, which translates into a better mortgage loan program for you, better terms, lower down payment on the loan, better interest rate, lower closing costs, and many other factors that will either save you money or cost you more money, depending on how diligently you work on achieving your raised credit score.
With a mortgage loan, the lender has a bit of safety factor built in, because your house is really your collateral on the loan. If you default on the mortgage loan, the lender can sell your house and you get nothing. But unless extreme circumstances warrant it, lenders don't like to do that. They make their money with loans, not by selling houses where the previous owner defaulted.
In the mortgage loan evaluation process, your credit reports from all three major credit bureaus will be analyzed thoroughly. Any skeletons in your credit closet will be exposed and you will be asked about them, even if it was from several years ago. Know this up front because chances are better than excellent that this WILL happen …. IF those entries are still on your credit report.
This is where knowing what you can do to raise your credit score comes into play, because you have rights under the law. One of those rights is that erroneous entries on your credit report can (and SHOULD) be disputed by you, and the credit bureau who is reporting that data then has 30 days to either verify it, or if it cannot be verified, it must be removed. You are the only one who can dispute data on your credit report, so get a copy of your credit report and start looking for errors.
Here's another reason why this step is so critically important: studies have shown that the majority of consumer credit reports have errors on them. This only makes sense, because creditors and lenders typically only report to one of the three credit bureaus, and since they do not share data between them, it is a fact that not one of them has an entirely accurate picture of your credit history. That loan that you paid off three years ago might be showing as paid off with one agency, but might also be showing as still outstanding, past due, or even charged off by another agency. These errors all tie together to lower your overall credit score, so it is obviously worth your time and effort to get them disputed and corrected.
Another thing you can do is to make each and every one of your credit card and loan payments on time with at least the minimum amount due. Unfortunately, this is really a "history" thing, so if you are going to apply for a mortgage two months from now and have not been making timely payments before now, your mortgage loan is going to suffer. Making timely payments accounts for about 30-35% of your total score when your credit score is calculated.
If you have credit cards with outstanding balances on them, that is ok, as long as none of them are past due. Your best bet is to make payments on them such that you NEVER exceed your credit limit, and that your outstanding balance is less than about one third of your credit limit. This tells your mortgage lender that you are not abusing your credit privileges by "living on the edge" of your credit limits.
Bottom line: to get the best mortgage loan possible, take the time beforehand to review your credit report so that it looks as good as possible to the lender. The time and effort you put into this will pay itself back in spades. For more insights and additional information on how to Raise Your Credit Score as well as getting free copies of your credit reports from the major credit bureaus, please visit our web site at http://www.credit-help-center.com
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