How to raise your credit score to get a lower-interest mortgage

People successfully closing a deal

If you’re looking at homes for sale in Central Georgia, exploring your financing options is a must. Whether you’re looking at older, established properties or new homes for sale in Warner Robins, it’s a necessary step in the home buying process.

As you apply for a mortgage loan, your financial situation will be assessed. Lenders will take a look at your credit score, debt-to-income ratio, monthly income, and other related factors to determine not just your eligibility for a mortgage but also your chances of getting a low interest.

Why your credit score matters

Whenever clients ask us, “What do you need to buy a house?” we always reiterate the importance of an acceptable credit score. You don’t need high marks to qualify for a loan, but a good credit score can help you secure a mortgage with a low interest rate.

Different types of loans have their respective minimum credit score requirements. For instance, conventional loans require a minimum credit score of 620, which is considered in the low range. A Federal House Authority (FHA) loan, meanwhile, is fine with a minimum credit score of 580 to grant a 3.5 percent interest. A jumbo loan, so-called as it exceeds the set loan limits, require individuals to have a credit score between 700 to 720, sometimes even higher.

Your credit rating also plays a role beyond real estate. You need this to apply for a credit card, non-real estate loans, and even cell phone plans. Keeping your credit score in the green will help you unlock perks and great deals.

If you find your current credit rating not up to your standard, here are a couple of things you can do to raise.

  1. Review your credit reports and dispute inaccuracies

    Make sure all the information in your credit reports are true and accurate.  You are entitled to one free report from each of the credit reporting agencies (Equifax, Experian, and TransUnion) every year. Take the time to look over these reports and look for any inaccuracies. Any missing or incorrect information should be reported immediately as they can have a huge impact on your actual score.

    Read more about disputing credit report errors here.

  2. Pay your bills on time

    Your payment history makes up a sizable chunk of your credit history. Making payments late or skipping payments altogether can seriously impact your score. It’s important that you make all of your monthly payments on time to avoid serious hits to your credit.

    If you have delinquent accounts, start paying them off immediately. Make sure that you continue to pay your bills on time and settle outstanding debts as well to avoid new delinquencies. Continuing this habit will help you establish a better payment history and, as a result, reduce the impact of your past late payments.

  3. Reduce your total debt

    Debt-to-income ratio is another aspect that affects your credit rating, and the best way to make your debt proportionate to your monthly income is by reducing your total debt. In general, the payments you make to cover your debts should only take about 12 percent of your salary.

    By leveling your debt-to-income ratio, you’re also making room for the debt you’ll incur once you get your mortgage. To give you an idea, your monthly amortization can eat up to 43 percent of your monthly income.

  4. Don’t close existing lines of credit

    It can be tempting to close accounts once you pay them off to avoid the temptation of racking up new debt, but do not do this. Closing credit cards reduces your total available credit, which will then increase your credit utilization ratio. Keep them open as long as they’re not costing you anything.

    At the same time, avoid opening new credit accounts. It creates available but unnecessary credit and can tempt you to spend more. Furthermore, each new account you open causes a hard pull on your credit report, which can be detrimental to your score over time.

Explore your financing options in Central Georgia with Warner Robins Home Search

Browse our blog to learn more tips on how to improve your credit score and bag the best mortgage deal for your real estate plans. You can also use our advanced property search tool to look at new houses for sale in Warner Robins and Houston County, GA to help you determine the right kind of mortgage loan.

You are also invited to get in touch with our team. Give us a call at 478.832.0388 or fill up this form.