The "Loan Xperts" Blog

How To Ensure You Get The Best Mortgage Rate:

Are you planning on buying a new home or refinancing your existing home loan in the coming year? Are you worried about whether or not you will qualify for the best mortgage rate?

If you answered yes, then now is the time to make sure that your credit score, also called your FICO score, has an excellent rating.

All too often, people do not realize just how critical their credit score can be when applying for a loan. With Fannie Mae and Freddie Mac both utilizing risk based pricing models now, you’ll need a FICO score of 740 or better to have access to the lowest mortgage rates, whether purchasing or refinancing. In turn, these lower rates can save you up to hundreds of thousands of dollars over the life of the loan.

Even with a credit score of 680, which used to be the benchmark to assure the best rates, you will be assessed an adjustment that can increase the rate as much as a full percent. And with 30 year rates hovering around 4.75% that equates to a 20% penalty, which will increase your costs dramatically. In these days of tight credit, it may even be difficult to get a mortgage with a FICO score under 620!

So what steps should you take to improve your credit rating and FICO score?

First, get a free copy of your credit report from each of the three main credit bureaus by going to www.annualcreditreport.com. Review the report carefully, checking for any mistakes. If there is any incorrect information being reported, this will adversely affect your credit score.

Second, it is advisable to take the additional step of obtaining your credit score(s). The free credit report mentioned above does not include your FICO scores, so you may be required to pay additional for this service.

With your actual credit score in hand; you will be able to decide what measures you need to take to improve it. Often times the various credit scoring agencies will look at your report and offer their suggestions to improve your credit score. Furthermore, they offer services that will allow you to keep track of credit card fraud.

Third, there are some easy, but important steps that you should take with your credit cards and other consumer loans.

• Make every bill payment on time. Even one late payment will hurt your credit score.
• If you are behind in any bill payments, do your very best to catch up immediately. If you missed a payment in the past, then by being absolutely on time with your payments, your score will rebound quickly.
• Pay down your credit card balances. Credit card debt forms an important part of your credit score. Any balance on a credit card that is over 9% of your credit limit begins to lower your credit score. A balance that is a high percentage of a credit card limit will seriously affect your score.
• Do not close any credit cards, unless you are carrying over ten accounts. Closing a card can lower your score. If you have any cards that you do not use, then transfer the balances if you are able and reduce the balance to zero.

Taking these few simple steps now will assure that your credit score is in tip top shape when you apply for a new mortgage, or any other type of loan.