How to Boost Your Credit Score to Get a Lower Mortgage Rate

The rate you lock in plays an important role in your monthly mortgage payment.

For example, a homeowner with a credit score of 760 or higher and a mortgage interest rate of about 6.37% has a higher $300,000 home than a homeowner with a mortgage interest rate of about 6.98% and a credit score between 660 and 679. You will pay about $122 less each month on your loan, according to Bankrate analysis of recent FICO data. Over the 30-year term of the mortgage, the total savings would be about $43,920, according to Bankrate consumer spending analyst Ted Rothman.

However, it is possible to move the needle in 2-3 months. A few points difference can be game-changing, especially if your score crosses the 620 credit score threshold (the minimum score required to qualify for a typical mortgage).

Here are three steps to consider:

Request rescoring

Before applying for a mortgage, pull credit reports from each of the three major credit bureaus (Experian, TransUnion, Equifax) and make sure they are correct. You can request it for free at AnnualCreditReport.com.

If the report is in error, ask the credit bureau to correct it. Bruce McCrary, senior vice president of the National Credit Counseling Foundation, says how much a score improves by correcting inaccuracies also depends on the severity of the error. This process can take months, which may be too long for many homebuyers. Luckily, there are ways to quickly track changes.

If you need to apply for a mortgage and find an error that needs to be fixed immediately (such as an account in collection being incorrectly listed), the mortgage company will ask the credit bureau for a quick rescore. may request. Borrowers are usually required to receive a letter from their creditors stating that they have reported incorrect information, said Melissa Cohn, a mortgage banker in New York. Expedited rescoring typically takes about 3-5 days to complete. Ms. Cohn has seen some borrowers score her 50 points higher after rapidly rescoring.

Borrowers who have recently paid off their debts may be able to ask their mortgage company to request an expedited rescoring if those payments are not yet reflected on their credit report.

NFCC’s McClary said expedited rescoring typically costs between $25 and $50 per account. If new late payments are revealed, a reassessment may lower your credit score.

Refrain from applying for credit or financial planning

Lenders may elicit a borrower’s credit report or conduct so-called rigorous scrutiny before making a lending decision. Harsh scrutiny typically lowers credit scores by a few points, said Aniva Hinduja, general manager of homes and mortgages at Credit Karma.

When you sign up for certain cell phone plans or utility bills, such as buy now pay later plans, lenders can take a hard tug. Please read the Bylaws before committing to a new funding plan or line of credit, including credit cards.

Bill Banfield, executive vice president of capital markets at Rocket Mortgage, said all mortgage credit inquiries within the 45-day window count as one inquiry. Continue to shop for your mortgage within this period to minimize the drop in your score, he said.

Pay off debt or request a credit limit increase

A big factor in your score is how much you borrowed compared to your total credit available. A financial adviser recommends keeping her credit card usage below 30%. If you want to improve your credit score quickly, you need to pay off enough debt to get it closer to under 10%, says Credit Karma’s Hinduja.

Draining all your savings to pay off debt can backfire on your home search, says Christopher Totaro, a New York real estate agent. Banks also consider available cash in mortgage applications.

Liquidity exhaustion can be a problem when buying a co-op and the co-op’s board requires a certain level of liquidity, Totaro said. Banks may agree to provide mortgages, but co-op and condo boards typically need more liquidity than banks, he said. You’ll also want to keep some cash on hand for home repairs.
Another strategy that can reduce credit utilization is to ask your card issuer to increase your credit limit. Before asking an issuer to increase its credit limit, make sure he doesn’t pull hard credit, he said.

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