It seems like such a simple equation. If you want the best mortgage interest rate, be sure that your credit score is as high as possible. And for once, this deceptively easy to understand formula actually is true. You really can get better interest rates if you can boost and keep your credit score as close to the maximum of 850 and steer it clear of the low end of 300.
According to a recent story by mortgage and credit expert, Dan Green, there are some easy ways to get that all important credit score up to where it will really do a potential homebuyer some good. “Anyone can raise their credit score to “Excellent.” This is because credit scores are based on a formula and parts of the formula are well documented and described,” writes Green on the website, The Mortgage Reports.
So what does Green suggest? First of all, it’s important to understand what scores actually matter. While there are many credit reporting companies in the market, he says that only three matter when it comes to mortgages: Equifax, Experian and TransUnion. Not only are those the only three credit reporting outfits that matter, Green says that anyone considering buying a home needs to realize that only specific reports issued by these companies are used by mortgage lenders. They are:
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- The Equifax Beacon 5.0 report
- The Experian/Fair Isaac Risk Model v2 report
- The TransUnion Fico Risk Score 04
This is important to know because these are the reports mortgage lenders analyze when they’re considering your application for a home loan. “Your lender then takes the median of the three scores (i.e. the one in the middle), and calls it your credit score,” writes Green.
One benefit of applying for a mortgage is that a lender will supply you with a copy of your credit score for free. Green suggests you take advantage of this access to a free credit score and also pay heed to the notes that accompany them, which provide a road map to improving your score. Tips will include the obvious, like always paying your bills on time, and the less clear cut, such as keeping older credit cards open and using them from time to time.
Another bit of advice Green offers is to note how close you are to the credit limit on any of your cards. If you’re near the limit, that is a black mark against you in a lender’s eyes – the ideal is to have a balance of less than 30 percent of your credit limit. If you can’t pay down the limit, Green suggests asking the credit card issuer to up your card’s limit to get it below that 30 percent threshold. Paying close to attention to credit scoring details, insists Green, can up your score by 100 points in no time.