When qualifying for a mortgage, lenders tend to base your rate on your ability to repay the loan. One major indicator of how good you are with making monthly payments is your credit score.
If you have a low credit score, your ability to get a home loan could be put in jeopardy, and if you still manage to qualify, it could be for a much higher rate, as the lenders attempt to compensate for the risk.
According to U.S. News and World Report your credit rating can specifically affect three key factors when qualifying for a home loan. These are the amount you will be permitted to borrow, the term of the loan and your interest rate.
To obtain a copy of your credit report to see how strong your score is, you can contact one or all of the three major credit bureaus: Equifax, Experian and Transunion. Federal law requires you be able to receive a free copy of your credit report at least once per year. However, if you opt to get multiple copies, you will be required to pay a fee for the information.
In addition to your credit score, lenders consider a number of other variables when considering you for qualification, including your employment record, salary and debt-to-income ratio. While these are all still very important, you credit score tends to be the key indicator in the mortgage loan rate you receive.
In the meantime, if your credit score requires some improvement before you try getting a home loan, there are a few ways you can work to improve it.
According to MSN Money, if you don’t have a credit card, you should get one and use it regularly. However, if you can’t qualify for a regular credit card, you may want to consider getting a secured credit card where a lender give you a credit limit equal to the deposit you make. However, not all secured cards will help your credit score, so research that detail.
Additionally, other than a credit card, taking on a general installment loan that you consistently stay current on is one of the fastest ways to start repairing your credit rating. These general loans include student, automobile and personal loans.
Meanwhile, if you have accumulated a significant amount of credit card debt, paying paying down the balance will also help you score. Most lenders like to see credit card balance below 30 percent of the credit limit, says the website. In addition, if you maintain a balance below 10 percent, it can help even more.
Owning a home is a major financial step and should be part of your overall financial plan. After making a mortgage rate comparison to find the best loan, Freedom Mortgage can help you stay on top of your mortgage.
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