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How to Raise Your Credit Score before Applying for a Mortgage |
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It is important to know how
to raise a credit
score before applying for a major loan such as a home
mortgage. The stronger the credit score, the better the borrower's
chance of qualifying for a loan and getting a competitive interest rate
and competitive terms. The following information explains how a credit
score is calculated and offers tips on how to raise a credit score.
What Is a Credit Score?
A credit score is a number assigned to anyone who borrows that lenders
can review to determine the risk the borrower poses. The cost of
borrowing is based on the risk the borrower represents to the lender.
A credit score is based upon the borrower’s credit history, which is
maintained by the three primary U.S. credit reporting bureaus, Equifax,
Esperian and TransUnion, and upon a proprietary calculation
administered by the Fair Isaac Corporation. The resulting number is
called a FICO score.
FICO scores range between 300 and 850 points. A score of about 720 is
considered good, with anything above that qualifying the borrower for a
lender’s best interest rate. A score of 620 or below is considered bad;
the loan applicant will be considered a subprime borrower.
No Quick Fix
Many borrowers wonder how to raise a credit score quickly in advance of
a loan application. There is almost no quick fix. A credit history
contains a record of all borrowing and any negative activity by the
borrower. This includes late payments, missed payments, over-applying
for credit, delinquencies, defaults, foreclosures and bankruptcies. It
takes three years for a negative report to fall off the credit history,
seven years for a foreclosure and 10 years for a bankruptcy. Absent a
mistake on the part of the lender or the credit bureau, there is no way
to speed this process.
First Check for Mistakes
The first step in an effort to raise a credit score is to check the
credit history carefully for any mistakes. Every borrower is entitled
to a free look at his or her credit report once each year. Additional
reports are available for about $40. If a mistake is spotted, the
borrower should bring it to the attention of the appropriate lender.
The lender is required to investigate and get back to the borrower.
Pay Off Credit Cards
In advance of applying for a mortgage, pay off all the credit card debt
possible, preferably paying off as many cards completely as possible. A
good goal is to be borrowing only 30 percent or under of available
credit card debt limits.
Another way to raise a credit score is to slow the use of credit cards
before applying for a home loan.
Build Relationships
Mortgage lenders or brokers want to lend money. Get to know loan
officers well in advance of applying. This might not be a method for
raising a credit score, but it can help a borrower get the best loan
with an existing score. In addition, lenders have discretion in some
areas, and generating goodwill by listening to them and following their
advice can help you get a loan approved.
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Credit Card Articles > Poor or No Credit > How to Raise Your Credit Score before Applying for a Mortgage
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