With credit tightening, lenders are taking a closer look at customers' financial histories and requiring higher credit scores than a few years ago for home loans with the best mortgage rates.
Consider these three steps to improve your score and your chances of getting the lowest interest rate on a home loan.
1. Get The Score
Your credit score, also known as a FICO score, is based on your bill-paying history and debt profile. FICO scores range from 350 to 800. Although loans are available for consumers with scores below 700, you need a score of at least 720 to get the best mortgage rates. It's a good idea to know your credit score before you go shopping for mortgages so you know where you stand with lenders. Each of the three U.S. credit bureaus produces a separate score, but you can get a single score representative of all three credit bureaus for a small fee at myfico.com.
2. Fix Mistakes
Knowing your score isn't enough. Review credit reports to make sure the companies that calculate your score have accurate information about your financial history. You are entitled to one free copy of your credit report each year from the three companies that produce credit scores--Equifax, TransUnion, and Experian. You can request reports at AnnualCreditReport.com, a centralized site operated by the three companies. Carefully review the reports, and fix any mistakes by calling the credit bureau and the financial institution that reported the information. Fixing just one mistake may increase your score enough to qualify you for better mortgage rates.
3. Improve Your Score
The best way to improve your credit score is to handle credit responsibly. Pay your bills on time and don't take out any more credit than you need. Don't open or close a lot of accounts suddenly, as these actions may actually lower your score. Pay down your debt as much as you can, catch up on any late payments, and keep your credit card balances as low as possible.
About the Author
Barbara Marquand is a freelance writer who writes frequently on business and financial topics.