To get a low mortgage rate, your creditworthiness is important. Here’s how to increase it

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When you’re in the market for a new home, you may overlook one key to your success: your creditworthiness.

This three-digit number has a direct impact on your ability to take out a mortgage and the interest rate you will be paying.

Mortgage rates are at a two-month low, with the 30-year benchmark fixed loan at 3.11% according to Bankrate. On Wednesday, the Federal Reserve announced that it would continue to hold short-term interest rates near zero, which means mortgage rates should stay low.

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To get this low rate, you need to have a good credit score.

“Even a quarter point or a half point can make a big difference in the long run on a large loan amount,” said Ted Rossman, senior industry analyst at Bankrate and CreditCards.com.

Credit scores range from 300 to 850. A good score is between 670 and 739, and a very good one is between 740 and 799 and 800 and above are considered excellent according to FICO, a leading credit scoring company.

Homebuyers who took out mortgages in the fourth quarter of 2020 had an average of 786, according to the New York Federal Reserve Bank.

Failure to keep up doesn’t necessarily mean you are left out of the market. You can make multiple moves to improve your score.

First, check your credit rating

Receive one free annual credit report from three major credit rating companies: Experian, Equifax, and TransUnion. You can contact anyone directly or access it through annualcreditreport.com.

In addition to knowing your score, you should also make sure there are no bugs or unintentional skeletons in your closet, such as: B. a missed payment that you forgot.

Getting your report before you apply for a mortgage or pre-approval, ideally a few months in advance, will give you time to resolve any issues.

Pay bills on time

Late or missed payments can affect your score.

The easiest way to avoid this is to set up automated payments for your bills, said Faron Daugs, founder and CEO of Harrison Wallace Financial Group.

Lower your credit utilization

Lenders will check to see if you have high credit balances.

Even if you pay your credit card bills in full each month, you may still have a high utilization rate, Rossman pointed out.

For example, if you make purchases of $ 3,000 and you have a limit of $ 5,000, you are using 60% of your available balance. Try to keep it below 30%, Rossman said. Those with the best credit scores keep it below 10%.

Making an extra payment in the middle of the billing cycle can help lower the balance before the bank statement comes out.

Become an authorized user on someone else’s credit card

When you run out of funds, one of the best ways to start building is to become an authorized user on someone else’s card, Daugs said.

“Make sure you do it with someone with good credit,” he warned.

If the account is still in good condition, it will have a positive effect on your balance.

Get a Credit Builder Loan

Some community banks and credit unions offer credit-forming loans to help the holder build credit when making payments.

You pay interest, although some lenders may reimburse the cost after the loan is repaid.

Alternative credit scoring doesn’t matter

Experian Boost can increase your Experian credit score by counting phone, utility, and streaming service bills.

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You can increase your balance with alternative solutions that involve counting bills that would not normally appear on your credit report. However, they may not work for government-secured mortgages.

Experian Boost can increase your Experian score by counting phone, utility, and streaming service bills, while eCredable Lift reports utility and phone payments to TransUnion. With Perch, you can grow your score through recurring expenses such as subscription services and rentals.

The platforms use a newer version of the FICO algorithm, Rossman said. Government-backed mortgage lenders Fannie Mae and Freddie Mac are requesting older versions so they don’t see any improvement in scores.

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