How to repair your credit and get a better mortgage loan

by Erik J. Martin

If you want to buy a house, chances are you’re going to need to borrow funds to pay for that transaction. Problem is, you may get charged a higher interest rate and fees or get turned down completely if you pursue a mortgage loan when you have poor credit.

Your credit rating is largely determined based on two important factors: Your credit score, represented by a numerical three-digit value ranging from 350 to 800, which indicates your creditworthiness; and your credit history, as reflected in your three credit reports provided by Equifax, Experian and Trans Union.

“Poor” credit is typically any credit score below 600. e higher your credit score, the less risky you are perceived to be by a lender. Experts recommend aiming for a credit score of 720 or higher.

“Lenders use your credit score and other factors like your income, employment history, and debt-to-income ratio to determine whether you qualify for a mortgage loan and what interest rate and terms you will be offered,” says Jason Skinrood, a certified finance expert and loan officer. “A higher credit score typically indicates that you are a responsible borrower who is likely to make on-time payments, while a low credit score suggests you may be more likely to default on a loan.”

Just as a straight-A student is more likely to get into a top-tier college, a good credit score can help you qualify for a mortgage loan with better terms and rates.” and you would pay a total of $343,440 over the life of your loan.” means taking steps to improve your credit rating and credit score, which typically involves addressing any negative items on your credit report, such as missed payments or high levels of debt, and taking steps to establish a positive credit history,” Skinrood adds.

Case in point: Let’s say you are applying for a 30-year fixed-rate mortgage loan of $200,000. Your credit score is currently 620, which qualifies you for a 5.5% fixed interest rate. But if you can up your credit score to 720, you may be eligible for a 4.0% fixed interest rate.

Lenders will also look closely at your credit reports to determine if you are a worthy borrower candidate.

“Your payment history, as reflected in your credit reports, isn’t just a real-time reflection of your finances. It provides a seven-year window into your past, as most negative credit reporting items have that long to appear on your reports,” notes Michael Bovee, founder of Consumer Recovery Network in Boise, Idaho.

To repair your credit before applying for a mortgage loan, take the following steps: can negatively impact your credit score and make it more difficult to qualify for a mortgage loan,” cautions Skinrood.

• Pay your bills punctually. Late payments can severely affect your credit score and show lenders that you might be a risky borrower.

Shekhtman, CEO/ founder

Alex of LBC Mortgage, explains that your credit score “is like a report card for your financial responsibility.

“At an interest rate of 5.5%, your monthly mortgage payment would be $1,135, and you would pay a total of $408,600 over the life of your loan, not including taxes and other fees,” continues Skinrood. “But if you qualified for a 4.0% interest rate, your monthly mortgage payment would be $954,

It’s crucial to check your credit score and three free credit reports several months before you plan to apply for a mortgage loan so that you can work to fix your credit if necessary.

“Repairing your credit

• Access and review your three free credit reports at annualcreditreport. com. Check each report for omissions, errors, and fraudulent accounts and dispute any of these with each of the three credit bureaus.

• Pay down as much of your debt as possible, particularly credit card debt. “A high debt-to-income ratio

• Don’t close old credit accounts, even if you don’t use them. is can help improve your credit utilization ratio and demonstrate to lenders that you have a long credit history.

• Don’t open new lines of credit or credit accounts, which can detrimentally impact your credit score.

• Establish positive credit. If you lack a credit history, try applying for a secured credit card or becoming an authorized user on another person’s credit account.