When you’re shopping for a home, it’s important to pay close attention to mortgage rates, the amount of interest that lenders charge on a home loan. Though it’s only a small percentage, the mortgage rate directly affects the amount of your monthly payment and how much you’ll pay over the lifetime of the loan. The lower the rate, the less you’ll pay.
No matter where mortgage rates lie, it pays big to get the lowest one available. That’s why, if you’re planning to buy a home, you need to start paying attention to your credit now.
Credit Reports Determine Your Creditworthiness to Lenders
When you apply for a mortgage, the lender will pull your credit report to determine your creditworthiness. The information contained in your credit report includes old and existing accounts, payment history, and negative items such as accounts in collections or bankruptcies.
If you’re planning on buying a home soon, you should start reviewing the information in your credit report ASAP. You’ll want to have an idea of what’s in your credit report before you start submitting applications to lenders. If you find false information in your credit report, it could be a sign of human error or even identity theft.
Incorrect information should be disputed with the credit bureaus and/or the company furnishing the information. The dispute process can take a while, so it’s a good idea to start looking for inaccuracies on credit reports well before you start shopping for home loans.
Credit Scores Determine Your Mortgage Rates
The information in your credit report does more than help lenders decide whether to work with you – it also makes up your credit score, which is one of the top determining factors of the mortgage rates you can get. Generally, excellent credit scores get the lowest interest rates.
Consumers with a bad credit score might end up paying hundreds of dollars more per month and tens of thousands of dollars more over the lifetime of the mortgage solely due to higher mortgage rates.
Check Your Credit Now
Anyone planning to buy a home can get a head start on the process by checking their credit now. You should pull your credit reports from all three major credit bureaus – Experian®, Equifax®, and TransUnion® – and review the information to make sure it’s accurate. You should also determine your credit score and identify what range you’re in.
If your credit report contains inaccuracies or you want to spend some time building your credit score, you should start now. identity theft and credit monitoring can help by providing regular copies of your credit report and credit scores from all three credit bureaus and monitoring your credit reports for changes. This way, you can track your credit progress as you work towards becoming a homeowner.