One of the main factors lenders look at when you apply for a loan is your credit score. A good one can qualify you for the lowest rates available. However, a low one can make it hard to receive loans.
Improving it is critical if you want the best rates, as the New York Times reports. However, too often, people don’t know where to start. Here’s a primer on getting the ball rolling on improving your credit.
Review current credit information
The first step if you are considering a no appraisal refinance or any other loan is to review your credit reports online. Federal law requires that the three main credit agencies allow you to review your credit reports for free once per year. If you haven’t already done it, get access to them quickly.
Due to human error or other reasons, the credit agencies may have included inaccurate information on your reports. That data could be dragging down your credit score, so review your reports carefully. If you see anything wrong, dispute those items before you apply for a loan.
Pay down debt and take extra caution with new payments
As you get closer to applying, be extremely careful about any payment obligations you have and cut down on existing debt.
Paying off lingering credit card balances before applying for a loan can make a significant difference. That’s because it lowers your credit utilization ratio – a key factor in your credit score. Knocking out that debt will also make it easier for you to make your new mortgage payments.
Be sure to stay current on all your current bills as well. Late payments are never a good thing. But lenders might be a bit more lenient about a late payment that happened a few years ago. However, recent late payments are sure to raise their eyebrows.
It’s also important to realize that there’s very little you can do to dramatically improve your credit score overnight. Experts say good credit behavior over a full year may be able to help you add 100 points to your score. But there’s no magic formula to change it right away.
In the end, you need to be patient and make slow and steady progress with your score. That way when you apply for a loan, you walk away with an approval letter for the best rates out there.
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