Improve Your Credit Score to Take Out New Mortgage Loans
Posted 05/03/09
The credit crunch has decreased applications for mortgage loans and made lenders skittish about approving new loans. Many homeowners and would be homeowners think there is no point to applying for a new mortgage loan or trying to refinance an existing mortgage. However, they may be missing out on a great opportunity. Now may be an excellent time to refinance or apply for a new mortgage.Why? Because the Fed has attempted to stimulate economic growth with a series of rate cuts, leading lenders of mortgage loans to lower their interest rates as well. That can mean a windfall for you in the form of lower monthly payments and a lower total cost for mortgage loans. If interest rates are now at least two percent lower than they were when you got your loan, now is the time to refinance.
But aren't banks leery of giving out new mortgage loans? Yes and no. The key is the borrower's credit rating. Banks are leery of offering new loans to anyone with a bad credit rating (and guidelines for what constitutes a bad rating are more stringent now), but they are happy, even eager, to offer loans to people with good credit. Get a free credit report and discover what your credit rating is, and if it is good, then apply for a mortgage right away.
If your credit is marginal, there are a few steps you can take to improve it within the next six months. Pay all your bills on time scrupulously, putting them on automatic withdrawal if you can. Because banks look at the ratio of credit available to you compared to credit you have used, pay down your credit cards and existing loans as far as you can. Do not close unused credit card accounts. Creditors were formerly advised to close unused accounts, but this advice is outdated, since leaving unused accounts open increases the amount of credit you have available and improves your ratio of available credit to used credit. Be especially careful not to close old accounts, since closing them may remove them from your credit report, shortening your credit history. You want as long a credit history as possible, in order to establish that you have been responsible with credit for a considerable time. If you take these steps, pay on time for the next half year, and do not take on any new debts (credit card, car loan, etc.), then over the next several months you should see your credit score rise.
As you can see, a credit crunch can be an ideal time to apply for new credit and new mortgage loans. Interest rates are dropping, so if you are the responsible credit user the banks want to lend to, negotiating new mortgage loans right now can lead to a much lower interest rate and substantial savings for you. Even a tight economy can turn to your advantage.
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Mortgage loans | Refinance mortgage |