Here are five ways you can improve your credit score to get the best rate possible.

Know Your Score

It is a good idea to know your credit score before you take on any big investment. After paying off debt, it can take some time to see the change reflected on your score. This is why we recommend checking your score annually.  Visit www.usa.gov/credit-reports for information on how to check your credit report.

Identify and Fix Errors

Once you have your credit report in hand, it is important to take a close look and ensure there are no errors. You want to look at your accounts and balances to verify they are at accurate amounts. Keep in mind it may take a while for balances to be updated on your credit score after a recent payment. If you notice any errors or suspicious activity on any of your credit reports, contact the credit bureau issuing that report and have them correct the information.

Pay Down Debt

Not all debt is inherently bad, but having a lot of revolving debt makes you less appealing to lenders. It is a good practice to pay off as much as you can. At the least ensure you make the minimum payment each month, and if possible, aim for a larger amount. It may be beneficial to consider asking for higher credit limits. Higher limits will improve your credit utilization — if you don’t increase your balance to match.

Don’t Miss Payments

Keeping your accounts in good standing is more important than you think. Even missing a few payments can bring down an otherwise excellent record. Setting up automatic payments using a bank account routing number is the best way to ensure no errors are made.

Limit your Credit Inquiries

It may be tempting to apply for loans and cards due to intriguing bonuses and benefits, but all these applications generate hard credit inquiries. Be mindful of inquiries you decide to opt-in for and be confident that you will be approved. It is important to remember that no matter how tempting, every single inquiry shows up on your credit report and can easily hurt your score.

The more you know about your credit, the easier it will be to work on improving your score. Most credit scores range from 300 to 850 and rank from bad to excellent. Having a higher score shows the lender you are at a lower risk of deficiency and therefore receiving an offer for a lower interest rate. You want to aim for a credit score between 720 and 850.

Each positive action is one step closer to receiving the best interest rate possible and landing your dream home!

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Here’s how borrowers can impact their interest rates.

Credit Score: Lenders use your credit scores to predict how reliable you will be in repaying your loan and is the most significant variable in deciding your credit score. In general, consumers with a higher credit score receive a lower interest rate than those with buyers with lower credit scores. Mortgage rates vary considerably between credit scores of below 640 and above 740.

Down Payment: Because mortgage lenders see a lower level of risk when you have more stake in the property, a larger down payment can mean a lower interest rate. With 20 percent or more down, your interest rate will be lower. There are loans available with good interest rates that require PMI which is mortgage insurance to protect the lender in the event a borrower stops paying their loan.

Loan Amount: Depending on the size of the loan, home buyers can pay higher interest rates on loans that are particularly high or low. The lender will have to adjust the rate due to the costs of a smaller loan and the risk factors that come with a large loan amount.

Loan Term or Duration: The term or duration is how long you to pay the loan back to the lender. Typically, shorter term loans have lower costs and interest rates, with higher monthly payments. Longer term loans will have monthly payments because they are spread out over a longer time period. Your Michigan Mortgage loan officer can analyze your unique situation to guide you to the best loan for you.

Loan Type: There a number of loan types to choose from, all having different eligibility requirement. Rates can vary significantly depending on what type of loan is chosen. The most common types of loans are known as conventional, VA, RD, and FHA loans. You can learn more about the different loan options by visiting our website.

Home Location: Often times, lenders offer slightly different interest rates depending on the state they live in. whether you are purchasing in a rural or urban area can also be a factor. So, it is important to talk to a local lender versus a national lender to get accurate rates.

There is no cookie cutter process to determine your interest rate. By understanding how your interest rates are determined will give you a better understanding of the best loan and interest rate for your unique situation. Mortgage 1’s highly knowledgeable loan officers can guide you to the very best loan for your needs.

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