Getting Low Interest Home Loans by Boosting Your Credit

Credit is a very important factor in obtaining low interest home loans. Whether you are buying a home or refinancing your current loan, a lender will definitely check your credit. Those with less-than-excellent credit will pay for that in the form of higher interest rates or sub-prime loans. There are some steps you can take before applying for a loan to boost your credit score and get you the home loan you deserve.

Pay Down Your Balances

Your credit card balances should not be above 30 percent of the limit. So if you have a $1000 limit on a card, you should not have charged more than $300. Also, going over the limit will hurt your score. So, pay down your cards before you apply for your loan.

Pay Everything on Time

Payment history accounts for nearly 35 percent of your credit score. Pay everything on time to avoid any marks on your credit. If you do have a poor history of on-time payments, starting today and paying on time for six to nine months will make a big change in your score. Consider setting up automatic payments for your bills so you don't forget when they are due.

Don't Apply for New Credit

Other than your mortgage application, you should not apply for any other credit. This would include car loans, new credit cards and department store cards. This will adversely affect your home loan application by showing inquiries on your report. Also, it can change your debt-to-income ratio and cause you to lose the loan.

Don't Close Any Accounts

If you paid off a card or simply don't use it anymore, keep it open. Closing an account will immediately drop your score. It will come back up, but when you are applying for a loan, you can't wait for that. Especially if you close an old account, your score will suffer since credit scores are influenced by length of credit history.

Dispute Negative Items

If you have negative items on your report, you can dispute them through the credit bureaus. Simply send a dispute letter with  or without documentation of the error. The creditor has 30 days to respond. If they can't prove that the information is accurate, it will be removed. Also, if they don't respond at all, then by law, it has to be removed. This takes a little time, but if you start a few months before applying for a loan, you can get these issues resolved before you make your loan application.