If you’ve started the process of financing north conway real estate, you have inevitably run into the negotiation of your interest rate for the mortgage. There are many factors that determine the rate you end up with. One of the more critical pieces of that nasty little puzzle will be your credit score.
Most of us have had small hiccups in our financial past. In my fist year of college, I had to learn the hard way that my debit card was not tied to an endless supply of cash (though it seemed that way for a couple months!!). If this is your first home or first mortgage and the first time you’ve seen you own credit report, you might be surprised at how much information it includes. I won’t attempt to cover how the credit companies come up with your specific score, but will cover a few simple ways to get and keep that score healthy and high. If you have never looked at your credit score, there are multiple ways to get a free copy (from the 3 main agencies). This will give you time to make any corrections necessary prior to approaching the lending company.
Through this information or through this simple three digit number, creditors will decide whether or not to approve you for the credit card or the loan you are applying for as well as where to set your rate. While you may still be able to get a credit card or a loan with a low credit score, it will usually have higher interest rates because you will be deemed too risky to lend money to.
First and foremost, you should get a copy of your report and take the necessary steps to correct any errors you find. For example, if you noticed that a particular report contains an unpaid debt but you previously paid it, you have to correct the error by sending a letter and the proof that you paid the debt in full. It is the responsibility of the credit bureaus to correct these errors, but it is up to us to bring those errors to their attention. I have heard a couple horror stories about friends’ school loans never being cleared from their reports after they were paid in full. Most reporting agencies will provide free reports once a year, but you can always request additional reports if necessary. You will be unable to correct these errors if you don’t know about them.
Although not an immediate step, you should always pay financial obligations on time. Do not underestimate the value of this simple step. While not always possible, it is also a good idea to pay your bills ahead of the scheduled due date. If you have problems in making payments on time, you may also consider automatic payments or some other type of direct payment plan. Something that was taught to me many years ago is to maintain communication with your financial company. If you know you are going to be late on a loan, credit card or even utility bill payment, make contact with the company and work out some equitable arrangement. While they won’t be happy that you are missing a payment, at least they know you were willing to take responsibility and are not just leaving them hanging.
The next best thing you need to do is pay down the debt you have. For example, if you have a credit card, you don’t have to pay all of it at once. The point to all this is to pay down your credit card debt up to the point that it will not have a balance that exceeds 50% of your credit limit. This will not only show that you have the ability to pay, it will also increase the amount of money you are able to borrow. While I would never encourage anyone to empty his or her savings to pay off a debt, the money you owe is actually costing you money every month. Basic finances tell us that it is better to save 10% than “earn” .5%.
Use credits on a minimum basis. If you are using credit cards, avoid making purchases beyond your credit limit and attempt to keep your balances as low as possible. One of the more common pieces of advice I encourage all my buyers to stick to is avoiding large purchases prior to going for a loan. While you may have the money or the credit, it does not look good to the lending companies to be making big purchases leading up to the purchase of a home. While some things are unavoidable such as a broken washing machine or other costly repair, these should be explained so there are no surprises at closing.
There are a bunch of factors that determine your credit score and determine your interest rate, both for a north conway real estate mortgage as well as a personal loan. It’s no secret that having steady income that exceeds your monthly expenses will help you get the money you want to borrow. But your credit score helps increase that dollar amount and lower your interest rate.