A favorable credit score can mean a lower mortgage interest rate when you’re looking to borrow for a home. This is because your credit score is used to determine how risky it is to fund your loan. In short -the higher your credit score is, the lower the risk of you defaulting on your home loan.
As you’ve probably guessed it, borrowers with high credit scores reap the benefits by having a lower interest rate –and this is the ideal position.
Working on raising your credit score can take some time, but it’s well worth the effort. Over the years, a low-interest rate can save you thousands of dollars!
Use these simple tips to get started raising your credit score to one that will give you the lowest possible mortgage interest rate on your home loan.
Paying Off Balances
Paying off balances is the top way to raise your credit score. However, there is a myth that paying off old debt, meaning a debt that has gone into collections, will hurt your credit score. This is not true! Paying off or lowering the amount owed, even from old debt, can raise your credit score will not affect you negatively.
Another advantage of paying off or settling old debt is that it prevents it from being sold to a collection agency. There have been incidents of the same debt being sold to multiple creditors making your debt appear bigger on your credit report.
You can also try to settle your debts for less than the amount owed. For example, if you owe $2000, negotiate a settlement by sending a payment of $1500. If you are sending a check as a settlement, mark the back of the check with the following notation: “Accepting this check is evidence that the transaction is complete and this charge will be deleted from my credit record.” If necessary, the canceled check will be proof of the settlement.
Keep Accounts Open After Paying Off Debts
Your credit score is based upon credit history. When you close the account, you essentially close the history. Instead, keep it open after you pay off debt. Doing so will raise your credit score and increase the likelihood that you will get a lower interest rate.
Also, it may not be necessary to have all your credit cards at zero balance to enjoy the benefits of a raised your credit score. Keeping your used credit at 30% or less of the available balance also reflects positively on your credit.
A creative way to do this is by moving a portion of your debt from one credit card to another. You can also see if your credit provider will increase your line of credit, thus affecting your debt to available credit ratio.
Errors On Your Report
Once a debt has been paid, it should be removed from your credit report. If you find that cleared debt still appears on your report, contact the credit bureau to have them remove it. They are obligated to resolve this misinformation within 30 days.
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