A highly important figure to determine your interest rate and fees in your mortgage loan is your credit score and what shows up in your credit history. If you have decided to refinance your mortgage loan, this means you will be applying for a whole new mortgage loan. To be able to obtain a loan with the best interest rates (and therefore to save money by achieving the cheapest monthly mortgage payments) before you go to your lender and start the refinance process, you should work to improve your credit score.
It is not overly challenging to improve your credit score if it is damaged or to build a good history if you have no credit history yet.
Before you begin to work on improving your credit score, it is important to find out where your score is currently. You are entitled to a report of your credit score, once every 12 months, from the three credit reporting bureaus, Equifax, Transunion and Experian. You will not be provided this report automatically so it is your duty to request it. *
The best and easiest method for improving your credit score is to apply for a secured credit card. A secured credit card is not a true credit card but acts like one. A secured credit card is a card that when you apply for, you “secure” the card with money deposited into an account with the credit card company. You cannot spend over your credit, because your credit is determined by the amount you deposit with the credit card company.
Apply here for the best secured credit card.
Once you have your secured card, you want to take it and use it to pay for all of your small, monthly expenses. Set up automatic monthly payments for all of your smaller bills such as your cell phone, home phone, cable, water, or utilities bills on your secured credit card. Just remember to top up your balance in the bank account you use to secure the credit card as needed. Not only will this help your credit by making sure you make all your payments on time, but you will also have good credit reports sent to the credit reporting bureaus each month. The secured credit card issuer will send reports to the credit bureaus each and every month on your behalf. Since your secured credit card is paid off on time each month the reports the credit card company will send only good reports to all three of the bureaus each and every month! It is very important you set up as many small monthly payments as possible on your secured card for this reason; the more payments you make each month, the more good reports will get sent to the bureaus and the faster your credit will get rebuilt.
There are many other ways for you to improve your credit before you refinance your mortgage loan and you should not depend on just one method for helping to rebuild your good credit history.
Other good methods to improve your score are:
· Pay down your regular cards. It can help your score to pay off your student loans, mortgage or auto loan, but the best way to help your score is to pay off your cards. Lenders like to see a big gap (at least 30%) between the credit you are using and the credit you have available. Pay off the cards that are closest to their limit, not the card with the highest interest.
· Check your credit limits. Your lender may accidentally report that your limit is lower than it actually is. If you are close to your limit this will harm your credit scores. If you call and request the credit card issuer to change the limit to the correct one most will gladly do so.
· Use your old credit cards. Your older credit cards have your oldest credit histories and the older the credit history the better. However, if you stop using your old card, the credit bureaus will stop reporting from these unused older cards.
· Fight old negative collections. You may have refused to pay a bill in the past that resulted in an unpaid collection against you. If the amount in default is low enough the collection agency may not bother with the collection when the credit bureau investigates.
· Get some love from your lender. If you have been a good borrower ask your lender if they will forgive your one late payment. You have to make the request in writing, but it never hurts to ask!
· Check your credit report. Nobody is perfect and it is possible for there to be errors in your credit report that can severely affect your score.
* To request your annual credit report please visit AnnualCreditReport.com