Methods of Getting Better Deal on a Loan (Method 3)

Method 3 of 3: Improving Your Credit Score

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1.Get pre-qualified and pre-approved. A pre-qualification is based on information voluntarily submitted by you to a lender, who then provides an 'estimate' of the maximum mortgage amount you can afford. It can give you a better sense of how much you can borrow and the range of prices of homes you can afford.^[1]

• A pre-approval means the borrower has had the lender perform credit checks, income verification, and various other underwriting tasks and has been approved for a specific mortgage amount.

2.Make payments on time. The better your credit score, the better deal you’ll be able to get when applying for a home loan. Every delinquency will result in a lower credit score. So, pay all of your utility bills and other open loans (student or car loans) on time. Keep in mind that it typically takes at least a couple of years to significantly improve your credit score, especially if you have accumulated bad credit through late payments.^[2]

3.Get a credit card and under-use it. Having one or two credit cards that you use for small purchases and pay off each month can be very good for your credit. By small purchases, we mean use only about 10% of your card’s limit. So if your card has a limit of $1500, then only charge about $150 to it and pay that off every month.

• Avoid making large purchases in the months before you apply. If you add new debt expenses shortly before applying for a mortgage, the loan underwriter may question whether you'll be able to make all your payments.
• If you can’t get a traditional card, then you could try getting a secured credit card, which is a card you can get through your bank that is specifically designed to build or rebuild credit. Or, you could become an “authorized user” of an existing credit card account by asking a relative or friend to add you to their account.^[3]
• Don't close accounts when you pay them off. Credit capacity is an important part of credit scoring. Unused open accounts do not help credit scores, but higher scores come from current use of credit. Use your credit cards - pay them off - repeat.^[4]

4.Dispute errors and negotiate. Mistakes on your credit score can happen – a late payment can be recorded if you didn’t actually pay it late. If mistakes happen, then follow up and dispute the error online with groups like Equifax or TransUnion.

• Also, if you make a few late payments because of unemployment or brief economic hardship, once you get back to paying on time you can write a letter to the creditor emphasizing your overall good history and asking them to erase the record of the missed payments.^[5]

 

 

 

Sources and Citations

 

1. ↑ https://www.discover.com/home-loans/articles/top-10-home-loan-tips
2. ↑ http://www.forbes.com/sites/moneybuilder/2014/05/02/11-ways-to-raise-your-credit-score-fast/
3. ↑ http://www.forbes.com/sites/moneybuilder/2014/05/02/11-ways-to-raise-your-credit-score-fast/
4. ↑ http://www.forbes.com/sites/moneybuilder/2014/05/02/11-ways-to-raise-your-credit-score-fast/
5. ↑ http://www.forbes.com/sites/moneybuilder/2014/05/02/11-ways-to-raise-your-credit-score-fast/
6. pic1.  http://www.wikihow.com/Get-a-Better-Deal-on-a-Home-Loan#/Image:Get-a-Better-Deal-on-a-Home-Loan-Step-11.jpg