A major factor in your ability to get a mortgage loan is your credit score. Your credit score is significantly affected by the following:
1) The types of loans you currently have in place
2) How old these loans are
3) The amounts you owe on them; and
4) Your past payment history on these loans
Frankly, if you take control of your loans, you can raise your credit scores and reduce your expenses.
Let’s say, for instance, the you got a poor deal on a major loan (such as a car or home loan) or you got an OK loan but your credit rating has improved since then. You should seriously consider shopping around for better terms and rates and refinancing this loan.
This is not something you want to do too often since it results in inquiries on your credit report but if you have good reasons to refinance, it can actually help. Getting more reasonable monthly bills that you will be able to repay more easily can help prevent late payment or non-payment credit dings you might get from having higher bills and it will improve your debt service ratios on bigger loans, such as a home mortgage loan.
This is something you would want to do ahead of time, when preparing to apply for a mortgage loan since it can lower your scores in the short term, as you will end up with inquiries on your credit report looking for a new lender, closing old accounts and opening new accounts. But, in the long term, refinancing one or more of your existing loans can be a good way to increase your credit score.
If your credit is damaged, look for loans that are offered for bad credit risks
If your credit scores are low but you need a loan, shop around for services that cater to people with low scores. These organizations know that most borrowers with low credit scores will still make their payments on time, so they are willing to speak with potential borrowers that other companies might reject out of hand. In the beginning you may have to deal with higher interest rates, but choosing a bad credit lender can get you started on a course for improving your scores and if you are organized and disciplined you can refinance your loan, once your scores have improved, to take advantage of better rates.
Know your credit score before speaking to lenders
Many people think that having a good credit score is all they need to worry about when applying for a loan. Unfortunately, this is not always the case. Loan officers normally get paid more if they can get you to accept a higher rate. Some unscrupulous lenders will try to tell you that your credit score is lower than it really is and that you can’t qualify for the best rate. Don’t let them get away with this.
Find out your credit scores before shopping for a major loan. That way, if you are quoted a rate that you think is high or unfair you can show the lender your printed copy of your credit score and tell them that your credit score of 720 (or whatever the score actually is) should qualify your for a better rate.
If they try to tell you that lenders get more accurate credit scores or that your credit score has changed, walk away. There are plenty of honest, reputable lenders out there, so there is not point in working with a lender who will lie to you to make a profit.
