5 Tips for Improving Your Credit Score for Better Mortgage Rates

Credit Score

If you’re looking to buy a house with the help of a lender, you’ll need to apply for a mortgage. The application process will require you to provide a lot of personal information, and your credit score will be a major focal point. Mortgage rates and credit scores really do go hand in hand, so knowing as much as you can about increasing your credit score before you apply could work to your advantage.

Finding the best mortgage rate is imperative to keeping your monthly costs as low as possible. One of the best ways you can ensure that you receive the lowest mortgage rate available to you is to make sure that your credit score is as good as it can be. Your credit score plays a part in both being approved for a mortgage and being offered a competitive rate.

This is because it is an indicator of how good you will be at repaying money that you borrow. A lower score may make you a less appealing candidate for a mortgage, which can lead to you being denied or offered a higher interest rate.

To help you get the best rate available, here are a few tips to help you improve your credit score for better mortgage rates.

1. Check Your Credit Score for Free

When you start your journey into improving your credit score for a better mortgage, the first thing you should do is check your credit score. There are a few different ways you can do that, but the most trusted and reliable way is to go through one of the three major credit reporting agencies. These agencies include Equifax, Experian, and TransUnion, and you can get one free credit report from each once a year.

These agencies will give you the most in-depth and accurate look at your current credit score. You’ll be able to see your credit score, how much debt you have, how much credit you’re eligible for, as well as any discrepancies in your credit report. You may also be able to track your credit score through your financial institution. At Capital Credit Union, for example, members can monitor credit scores for free through their digital banking. See what services your bank or credit union offers.

Take advantage of these free options then use the following tips to improve your score.

2. Pay Your Bills On Time

Paying your bills on time is one of the most important factors in determining your credit score. In fact, your bill repayment history makes up a whopping 35 percent of your overall score. If you’ve been good at keeping up with payments, then your credit score will reflect that. If not, there are a few things you can do to help you improve in this category.

If making payments on time hasn’t been your strong suit in the past, take steps to make it less likely to happen in the future. One way you can do this is by setting up automatic payments for your bills. This can include credit cards, utility bills, rent payments, mortgages, and other loans you may have taken out.

Automatic bill payment removes the added stress of remembering all the dates you have bills due by setting up a recurring day each month when the money will automatically be taken out and the necessary bills paid. All you have to do then is make sure that your accounts always have enough money in them to cover your bills, and you’ll be set.

3. Don’t Overuse Your Credit Cards

It can be tempting to treat your credit card limit as the amount you’re always able to spend. Credit card companies are notorious for increasing your credit line and giving you access to more funds. While you should feel free to use your credit card as you see fit, when attempting to increase your credit score, it’s best not to overuse it. Keeping the amount borrowed on the lower side can help you grow your credit score more easily and have a better chance of securing a competitive mortgage rate.

The amount you borrow from your available credit is known as your credit utilization, and experts recommend you keep that number below 30 percent. Ideally, the lower it is the better. So, if you’re able to bump it down to 10 percent or under, you may see a slightly bigger difference in your credit score.

You can do this without changing your spending habits by accepting the increase in credit limit offered to you by credit card companies and then continuing to spend only what you were previously. The new higher credit limit will lower your percentage of borrowing on its own without you making any changes.

4. Keep Older Credit Cards

Now is not the time to declutter your wallet of old credit cards. Though you may not be actively using them, keeping older credit cards can work in your favor when it comes to improving your credit score. Your oldest credit card is often your first experience with utilizing your credit and marks the beginning of your credit journey.

People with longer histories of using credit successfully are typically more appealing to lenders. It can also positively impact your credit score. Because your credit score is directly impacted by the longevity of your credit use, you should keep all credit cards intact while applying for mortgages. Canceling just one could take years off your history of having and using credit.

5. Pay Off Existing Balances

If you have existing balances on your credit cards or previous loans and you’re able to pay them off, now is the time to do it. Catching up on your unpaid balances can help to lower your credit utilization and increase your credit score. It can also help to save you money in interest payments that could be better spent paying for your mortgage.

While paying off existing balances is a positive thing, you shouldn’t do so if it could cause financial hardship. You still want to have a generous amount of money in your checking and savings account to pay for all the expenses that come with securing a mortgage. On the other hand, try to look for one or two existing balances that are close to being paid off and work from there. Meanwhile, make the minimum payments on other debts to keep them in good standing.

If you’re looking for the best mortgage rates, improving your credit score can give you the boost you’re looking for. You’ll be able to reap the benefits of your efforts when you apply for your mortgage. If you’re located in northeast Wisconsin, discuss your mortgage options with the loan experts at Capital Credit Union. You’ll be moving into your own home in no time.


Leave a Reply

About Marc Wallace

I'm never too busy to share my passion. I've created this page to help people learn more about business, finance and real estate. Besides all the serious stuff, I'm also a man that values family and healthy relationships. I hope you find my content insightful.

Recent Posts