When you buy or refinance, your credit score is one of the first things a lender looks at. It helps them determine if you qualify for a loan, and what interest rate they can offer you.
Your credit score reflects how reliable you are as a buyer, and is determined by your track record of borrowing and repaying banks, credit card companies and other lenders. Factors include:
- Length of Credit History – The longer you’ve been borrowing, the better.
- Amounts Owed – Having too much outstanding debt could adversely impact your score.
- Payment History – Lenders want to see that you pay regularly and pay on time. Even one missed or late payment could affect your score.
- New Credit – If you’ve recently opened new credit card accounts, lines or loans, it may have a negative effect on your credit score.
- Types of Credit Used – Lenders want to know what kind of credit you’re already using—standard credit cards, store credit cards, student and car loans, etc.
Keep track of your score.
To get a handle on your credit history and score, you can order three free credit reports per year from annualcreditreport.com, and buy a copy of your FICO score from MyFICO.com. FICO scores range from 300 to 850, and anything above 680 is considered good. Excellent scores, usually above 740, can help qualify you to get the best rates.
Find areas of improvement.
If your credit score isn’t what you’d like it to be, there are ways to improve it. Look at the itemized report that comes with your credit score and start correcting any negatives.
- If there are any misreported items in your report, gather supporting documents and dispute them.
- Contact creditors and negotiate payment plans for any past due accounts.
- Pay down balances when possible and avoid new charges
- Pay all of your bills on time. Every late payment for a credit card or bill gets reported to credit agencies, so pay at least the monthly minimum.
- Carefully balance your checking account to avoid bouncing checks.
The bottom line.
You should do what you can to improve your credit score before you apply for a mortgage or refinance. Even a small increase in FICO score could translate into a lower rate and big savings over the life of your loan. Contact a PNC Mortgage loan officer to learn more and discuss your options.