When you’re looking for a mortgage, a low-interest rate can save you thousands of dollars over the life of your loan. However, getting a good interest rate depends on having a high credit score. Your credit score is a measure of your creditworthiness, and lenders use it to determine your risk as a borrower. So if you want to improve your chances of getting a better mortgage rate, here are some tips to improve your credit score.
1. Get a copy of your credit report
The first step to improving your credit score is to know where you stand. You can get a free credit report from the three major credit bureaus: Equifax, Experian, and TransUnion. Review the report carefully and dispute any errors or inaccuracies. Make sure to file a dispute with all three credit bureaus if you find errors.
2. Pay your bills on time
Late payments are one of the biggest factors that can hurt your credit score. Make sure to pay all your bills on time every month, including credit cards, loans, and utilities. If you have trouble remembering due dates, set up automatic payments or reminders.
3. Keep your credit utilization low
Credit utilization is the ratio of your credit card balance to your credit limit. To improve your credit score, keep your credit utilization as low as possible, ideally below 30%. If you have a high balance, try to pay it down as quickly as possible. You can also request a credit limit increase to help lower your utilization ratio.
4. Don’t close old credit accounts
Closing a credit account can actually hurt your credit score, especially if you have a long credit history. If you must close an account, try to keep your oldest ones open, as they contribute to the length of your credit history. Closing a credit card can also increase your credit utilization, which can hurt your score.
5. Don’t apply for too much credit at once
Applying for multiple credit cards or loans at once can signal to lenders that you’re a credit risk. Each time you apply for credit, it results in a hard inquiry on your credit report, which can lower your score. Instead, limit your credit inquiries and wait at least six months between credit applications.
Improving your credit score is a gradual process, so be patient. It can take several months or even years to see a significant change in your score. But the effort you put in can pay off in the form of lower interest rates and better mortgage terms. By following these tips, you can improve your credit score and increase your chances of getting the mortgage rate you want.