Boost Your Credit Score to Get the Best Rate
ByIn the early part of 2009 when mortgage interest rates hit an all time low, below 5%, multitudes of borrowers attempted to get their mortgage loans refinanced. However, only a few went home satisfied. Majority went home empty handed because one major requirement that could qualify them for the lowered interest rate was a credit score of 620. A lot of people now need to find a way to boost their credit scores as this was the advice given to them by their brokers and lenders.
Since then, credit score became a focal point and everyone became conscious of their credit transactions. Everyone became interested how they could boost credit scores to acceptable level of 620. Statistics show that about 80% of the US population had credit scores above 620. The problem was, most of those who needed refinancing had good credit scores gone bad. As the year progressed the minimum required credit score crept upwards, and is now in some case a 660.
Today, interest rates are approaching the lows again, and a lot of people are still working hard to boost credit scores to at least 720. Why do I say 720, because that is where most if not all price adjustments for credit score fall off. Almost everyone is now attempting to boost their credit score in order to qualify for the lowest rate. The ability to refinance will help stretch the already tight budget of most Americans by lowering the monthly mortgage payment.
If you are one of those who had the misfortune of not being able to refinance because of your credit score:
1. Get a copy of the credit reports that was used. Check the credit information for possible errors and should you find any, gather proof and get in touch with the credit bureau who issued the erroneous credit report, Equifax, TransUnion or Experian. Have the reports corrected, by law the credit bureaus have 30 days to respond to notification of incorrect information; then request your credit to be re-scored. If the resulting credit score reaches the 620 mark, re-submit your application.
2. In case your corrected credit score still does not reach the 620 mark, you will at least have the consolation that you have made one good move to boost credit score.
3. Avoid late payments on your credit obligations. A good track record of timely payments can boost credit scores by several points.
4. Avoid using your credit card as much as possible to avoid getting to close to your credit limit. Besides, credit purchases cost more because of the increased interest rates on credit cards. If you do use your credit card avoid charging any more than 35% of the available credit. If you are already over this amount, put a budget to start paying down your credit cards.
5. Periodically check your credit reports for errors or unauthorized usage but it would be better to do it yourself. Asking a third party to do it for you is tantamount to having your credit history being checked and this will not help boost credit score. It tends to lower your credit score because it creates an impression of applying for credit facilities with other lending institutions.
6. Avoid opening up new accounts.
These are only some of the methods you can do to boost credit score. Fair Isaac & Co. (FICO) has a website online which offers tools on how you can improve your credit performance and monitor your credit reports. Check the site out and find more ways on how you can boost credit score.
Problems you can avoid with a good credit score:
1. Loan Level Pricing Adjustments: customers applying for a conventional loan with a score under 720 are charged a fee called a Loan Level Pricing Adjustment (LLPA) by both Fannie Mae (FNMA) and Freddie Mac (FHLMC). The potential cost could be up to 3% of the loan amount, so on a $200,000 loan the LLPA could be $6,000. Most FHA lenders have instituted pricing adjustments as well for scores under 720. The potential cost could be up to 1.5% of the loan amount, or $3,000 using the example $200,000 loan.
2. You may not be able to obtain Private Mortgage Insurance. Private Mortgage Insurance (PMI) is required on conventional loans is your Loan-to-Value is over 80%. Most PMI companies have instituted a minimum 680 credit score. USDA, VA, and FHA are alternatives; USDA and VA do not have mortgage insurance, and the mortgage insurance on FHA is through the government and not credit score driven.
3. You may not be able to get a mortgage. Most lenders will not accept anyone with a credit score below 620.
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