Last week we reported how mortgage rates won’t remain this low for long. For existing homeowners, this means that time is running out to refinance and lock in at low rates. But before you rush and refinance, here are some tips on how to improve your credit score. Why does this matter? Well the better your score is – the lower your mortgage rate.
According to Bankrate.com, you can actually make a significant difference in your credit score in just 30-45 days before refinancing. Here’s what you can do:
First of all, get a copy of your credit report. Comb through every single listed credit line and make sure everything is correct. Just removing any errors can improve your credit score dramatically. Don’t know where to get a credit report? Quizzle.com is entirely free (they don’t ask for any credit card information), and they provide you with both the report and score (most places charge you for the score – such as annualcreditreport.com).
After disputing all the errors (Quizzle has a tool right on your report that links you to where you can dispute problems), there are a few things you can do to maintain a good score. For example, having high balances (as in over 50% of the credit limit) on a charge card can potentially lower your score since it’s perceived as maxing out.
Your debt to credit ratio should also be less than 20%. But above all, don’t close any credit lines before refinancing. Closing a credit card will drop your score, especially if you’ve had the card for a long time because it removes all of the positive credit history.
And while you shouldn’t close any credit card, you should also avoid beginning any new ones. This is particularly true for big purchases, like buying a car which will also alter your debt-to-income ratio. Opening new credit lines will also ding your credit score, so wait until after the refinance to get that new card.
Lastly, according to Bankrate.com, don’t pay anyone to fix your credit and opt out of pre-screened credit card offers. Check out Credit do’s and don’ts before a refinance for the full article, and also 101 Ways to Improve Your Credit Score for more tips before refinancing.
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