Credit score helps you get a good mortgage interest rate

Here are some tips on how to help your credit score

Buying a house is expensive; the average American home costs more than two hundred thousand dollars. By the time you add in interest payments, that total will rise to a half a million when you finally pay it off. That, for most people, is a staggering amount of money. But you can save a bit by doing your part to get a low interest rate mortgage. The best way to insure that you get the lowest rate is to keep your credit score healthy.

Your credit score, also known as a FICO score or VantageScore, depending on who is keeping track, is a three digit number that represents your worthiness as a borrower. The formulae for creating these scores is proprietary, but what you need to know to keep them healthy is not. The FICO credit score model uses a scale from 300-850; the higher the better. Scores above 800 are exceptional; scores below 620 are problematic. In order to get the best and lowest interest rates, you need to have the highest score. How can you do that?

Here are some tips that will help you increase your credit score:

Six months before you plan to borrow, get a copy of your credit report. You can get one for free at AnnualCreditReport.com. Check it for late payments, delinquencies and errors. If you see errors, contact the creditor in question or the credit bureau and see if you can get the error corrected. If you have delinquent accounts, try to pay them off and ask the creditor to mark the credit report “paid as agreed.”

Pay your bills on time - This is paramount. Pay your bills regularly and make sure that you don’t pay late. Creditors want to see that their borrowers can pay their bills and pay them promptly.

Do not cancel older credit accounts - Your score is partly based on your “history”, the older the better. If you cancel older accounts, the average age of your history becomes younger, thus lowering your score. If you must cancel an account, cancel one that is newer, say, only a year or two old.

Pay down high credit card balances - Lenders look to see how much of your available credit you are using. They want to see you using less than 30% of your available credit. If you can get it lower than that, so much the better. Don’t move balances from several cards to one and then cancel the rest; it will actually increase your debt ratio and lower the age of your credit history.

The rules are simple - lenders want to see people with established credit who have a history of paying their bills, paying them on time, and not spending more money than they have. If you are going to be spending a lot of money on a house, potential lenders want to see that you are capable of repaying the loan and not defaulting on it. All you have to do is clean up your credit report to make sure that it represents you as a responsible borrower. It may take time, so get started now.