Your credit score plays an important role in determining how difficult it will be to get financing for a home loan and the interest rate of your mortgage. Improving your credit score before applying for a home loan can be beneficial, but it will depend on how soon you want to purchase a home.
Ideally, you should work on making improvements to your credit score while you are saving up the down payment to purchase your new home. Most people spend a year or two setting aside money to buy a home. This allows plenty of time to review your credit and see where you can make improvements.
Everyone is entitled to free copies of their credit reports annually from all three major credit bureaus. You can either visit each credit bureaus’ website individually to request the reports or use the federal government’s free annual credit report website to request all three simultaneously.
You will want to review each of the credit accounts listed on your reports and verify whether the information is accurate. Keep in mind, the balances reported on the credit reports can run a month behind the current balances.
If you find any inaccurate information or accounts that are not yours, you need to submit an inquiry request to have the information reviewed and/or removed from your report. This process can take several months to complete. Once they are corrected and/or removed, it will be a few more months before you see a change in your credit score.
Your free annual credit report does not include your credit score. Each credit bureau has
its own methods for calculating credit scores, so they can be different. Many banks and credits cards are now offering free monthly credit scores, so you can utilize these free services to find out your credit score from specific credit bureaus.
You will want to verify which credit bureau the score is being calculated from—i.e. TransUnion, Experian, or Equifax. Then, if you need to, you can pay to get the score(s) from the other bureaus not made available through your bank’s free credit score service.
TIP: Most lenders use an average of all three credit scores when reviewing your home loan application.
There are both major and minor factors used to calculate credit scores.
TIP: The three major credit bureaus recently changed how they count inquiries for certain loan products like home mortgages. They understand you may shop around and apply for several home loans from various lenders through mortgage brokers. As such, they only count this as one inquiry because you will only get one loan.
Improving your credit score can help increase the number of loan programs available to you, as well as lower interest rates on mortgages. To find out what loan programs and rates you could qualify for, get prequalified for a home loan through A and N Mortgage. Call us at (773) 305-LOAN (773-305-5626) today!
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