Archive for December, 2011

Want An Affordable Mortgage? You Must Repair Your Credit Score First

December 8th, 2011

A big part of the American Dream surrounds the ability to purchase your own home. Unfortunately, for many prospective homeowners, owning a home is not even within the realm of possibility. Since the recent and many changes that have come into the housing market and related mortgage industry, fewer consumers are eligible or able to meet the criteria necessary to secure a mortgage. For those select able to meet the qualifications of a mortgage lender, there are still many issues to consider even with guaranteed loan approval.

Qualifying for a Mortgage

A lender may initially qualify you for a mortgage and you may be ecstatic to learn that owning a home is a possibility. While the lender may give their stamp of approval, the borrower needs to be careful – especially when it comes to the specifics of the loan to be given.

The terms and conditions of a mortgage are much more than just the lender’s approval. Borrowers need to make sure that the loan will cover the purchase price of the home but they also need to ensure that the lender’s interest rate is affordable. While interest rates are considered to be presently at an all-time low, you may not be guaranteed one of those low rates of interest. This will be dependent on your credit score.

Understanding Your Credit Score

Many borrowers do not fully realize the impact their credit score has on their finances. For instance, a borrower can get the nod of approval from a mortgage lender but because of their credit score standing, the mortgage loan may be accompanied by a much higher interest rate than the borrower can reasonably afford.

Potential borrowers should visit their credit score and report information long before they meet with a mortgage lender. Going into a new loan without being fully aware of what credit scores look like can have significant consequences on all of your future financials. When you believe you are ready to purchase a home, it is vital to order copies of your credit report and consumer credit score from the credit reporting bureaus. Once you have received the information, you need to evaluate the strength of your credit score where a loan will be concerned.

For those who maintain credit scores below 700, it would be highly recommended that the perspective borrower work on improving their credit score for six months or longer before seeking a mortgage loan. Lenders may be willing to lend money to those with less-than-perfect credit scores but they will do so taking their risk into consideration. The lender will likely provide the loan at a higher than average interest rate to cover the potential risks associated with a lower credit score.

For those who have a credit score between 700-730, work can still be done to tighten up credit standings to ensure interest rates on a new mortgage are as low as possible. Those with credit scores over 730 are considered to be much less of a risk for lenders. It is those score holders who are most likely to be offered good loans at reasonable interest rates.

How to Improve Credit Scores

Credit score repair is not difficult and all consumers have the right to make the efforts necessary to repair their credit scores. Improving a credit score will take time and there are no other legal ways to speed up the process. The credit score is a vital part of a consumer’s financial life and maintaining a high score will help to ensure that consumers save the most money on loans as well as get the best rates on other financial matters.

Ordering and reviewing relevant consumer credit reports and scores is the first step everyone should make before seeking loan approval or other types of credit. Dispute all mistakes and inaccuracies contained in the report to ensure the information is up-to-date and not otherwise working against you. Improving credit scores involves the on-time, consistent payment of regular creditor bills each and every month. How one pays their monthly financial obligations is a huge factor in the credit score calculation. This is the second place most consumers need to begin their credit repair efforts.

As time passes, it is important that consumers do not apply for new lines of credit or close existing accounts. Both activities can cause a drop in a credit score which can work to the disadvantage of the consumer looking for a mortgage loan. As months move along, the credit score will reflect the concerted effort to improve credit. Consumers should check in with their credit report and score within 4-6 months after efforts are started to reverse negative credit information.

Why Credit Improvement Makes All the Difference

After enough time has passed when care has been taken to improve credit standings, a consumer will likely be afforded a more reasonable, much lower mortgage interest rate. This matters a great deal when it comes to the affordability of a loan.

The interest rate on the loan is calculated over the life of the loan which is typically either 15 years or 30 years. Monthly interest added up over that long of a time span can essentially mean that borrowers will pay almost as much in interest charges for the loan as they did for their home. With a lower credit score and a higher interest rate, some borrowers will find their loan contract will leave them paying more in interest than for the home they purchased.

Of course, paying a loan off early can help reduce the total amount of interest responsibilities a borrower will be charged for provided there are no pre-payment penalties on the loan. But a few months of work to solidify your credit standing can cut out thousands if not hundreds of thousands of dollars in interest on your loan. In the short-term, this factor can influence which home you can purchase now while in the long-term, the interest rate you pay can have a huge impact on your overall financial stability.

J.D. Roberts is a seasoned writer in personal finance, specializing in credit repair. You can find more of his articles located at

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