The housing market has been recovering over the past few years and more people are interested in obtaining a mortgage for a new home. While mortgages can be very expensive, there are some ways that you can reduce the amount that you are paying for the mortgage. One of the most effective ways to reduce the cost of your mortgage is to get your credit in check. Here are some things that you should do before shopping for a mortgage.
Pay Down Your Credit Card Balances
One of the best things that you can do to lower the cost of your mortgage is pay down your credit card balances before shopping around for the loan. Your credit utilization rate is a large part of the calculation of your credit score. The more credit you are using, the lower your credit score will be. Paying down your credit card balances provides an immediate boost to your credit score and will reduce the interest rate charged for your mortgage loan. If you can, try to get your credit utilization rate down below 30%.
Do Not Open New Lines Of Credit
Every time you open a new line of credit, it lowers your credit score due to the “hard inquiry.” If you are applying for multiple lines of credit within a short period of time, lenders suspect that you may be in financial trouble and will charge higher rates to cover the increased risk of lending to you. Before applying for a mortgage loan, you will want to demonstrate that you have your finances in order by paying all of your bills on time and resisting opening any new lines of credit.
Review Your Credit Report For Incorrect Information
It is estimated that nearly 25% of all credit reports contain errors that have lowered the subject’s credit score by a considerable amount. These errors will only be fixed if you find them and report them to the credit-monitoring bureau that is listing them on your report. The federal government has made it easy for consumers to obtain a copy of their credit report by requiring that the credit monitoring bureaus supply one free copy of the report each year upon request.
If you find anything that is incorrect during the review, report it to the credit-monitoring bureau immediately. They will go through a process to try to verify the information and if the information is found to be in error, the information will be removed from the credit report. If you are having difficulty removing negative information that you know is incorrect from your credit report, you may want to consider obtaining legal representation.