To get the best interest rate for your home loan, you need to have a high credit score. Credit scores range from 300 for bad credit to 850 for the best credit. Good credit scores range from 680-850. 

There are several things you can do to boost your credit score. Start by checking your credit report annually for free at www.annualcreditreport.com

Federal law allows you to get a free copy of your credit report every 12 months from each of the three credit reporting companies; Equifax, Experian, and Transunion. By reviewing your credit report, you can ensure that the information on your credit reports is correct and up to date. Reviewing credit reports helps you catch signs of identity theft early.

In addition to home loans, credit reports may affect, credit card approvals, apartment requests, or even your job application.

To raise your credit score, pay your bills on time. Payment history to be a significant factor. If your credit report indicates that you have paid bills late, had an account referred to collections, or declared bankruptcy, your score is impacted negatively.

Keep your credit card balances low. The credit reporting companies evaluate the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit, it’s likely to have a negative effect on your score.

 

Don’t close out old credit cards. Scoring systems consider your credit track record. An insufficient credit history may affect your score negatively, but factors like timely payments with a long history and low balances can offset that.

Don’t apply for new credit. Many scoring systems consider whether you have applied for credit recently by looking at “inquiries” on your credit report. If you have applied for too many new accounts recently, it could have a negative effect on your score.

Limit the number of credit cards that you have.  Although it is generally considered a plus to have established credit accounts, too many credit card accounts may have a negative effect on your score. Pay off the lowest balances first, to reduce the number of open accounts.

In addition, many scoring systems consider the type of credit accounts you have. For example, under some scoring models, loans from finance companies may have a negative effect on your credit score.

Before shopping for a new home, it is important to get pre-approved for a loan. An experienced real estate agent can suggest a good lender to advise you on how to get the best terms for your home loan.

Ask the Real Estate Agent is a weekly column by Cheryl Kempenich of Coldwell Banker Burnet, who lives and offices in the Chisago Lakes Area. Submit your questions to ckempenich@cbburnet.com. All information is deemed reliable but not guaranteed. For legal assistance consult an attorney.